In an extreme case, the poor risks will be the only purchasers of coverage, and the insurer can expect to lose money on each policy sold. This situation, referred to as adverse selection, occurs when the insurer cannot distinguish between members of good-...

Insurance is an economic institution that allows the transfer of financial risk from an individual to a pooled group of risks by means of a two-party contract. The insured party obtains a specified amount of coverage against an uncertain event...

In order to protect the environment the Precautionary Approach is widely applied: fundamentally, where there are potentially grave or irreversible threats, lack of full scientific certainty shall not be used as a reason for postponing cost-effective...

Correlated risk refers to the simultaneous occurrence of many losses from a single event. Natural disasters such as earthquakes, floods, and hurricanes produce highly correlated losses: many homes in the affected area are damaged and destroyed...

The assessment of default risk is also critical in the valuation of corporate bonds and credit derivatives such as basket-default swaps. There is an important distinction between default risk under the actual probability measure and that under the risk-ne...

The first type measures the sensitivities of portfolio value to some particular market variables. Usually, a portfolio’s risk profile can be described by a large number of those sensitivities. The second type is more comprehensive as it ...

Mismanagement of past environmental risk issues, by both scientists and policy makers have left the public distrustful. When risk controversies arise, a struggle may result between competing interests. The typical response from scientists and industry dur...

Consider a credit portfolio that consists of default-sensitive instru¬ments such as lines of credit, corporate bonds, and government bonds. The corresponding credit value-at-risk (VaR), is the minimum loss of next year if the worst 0.03 percent event ...

Until the 2008-2009 crash, leading University endowments and other institutional investors have achieved superior returns over the past decade by shifting a sizeable proportion of their capital to private investments. Over this period, numerous pension t...

  The rules for banking supervision at the Bank of International Settlement (BIS) in Basel have changed business in all OECD countries. Basel I was launched in 1988. The justification of a framework is based on the interdependence of banks and...