Ch4 Managing Risks Flashcards
What are pure risks
Pure risks have no upside, they either happen or don’t
What are speculative risks
Are risks where the outcome can be good or bad
What are dynamic risks
Risks that change due to changes in the economy
What are static risks
Risks that are stable over the short term and won’t change significantly from year to year
What are fundamental risks
Risks that are not independent of eachother where if it occurs it will affect a number of people
What are particular risks
Risks that affect individuals randomly and independently
What risks do actuaries deal with
Particular, static and pure
What risks do quants deal with
Dynamic, speculative
What are the different ways to manage risk
Acceptance
Avoidance
Reduction
Self funding
Information
Risk sharing
Risk transfer
What does acceptance of risk entail
Some risks cannot be removed from life and simply need to be accepted
These risks can include risks that have consequences you can bear
Risks that have an upside
Fundamental risks
Explain what avoidance entails
When you avoid the opportunity to experience the consequences of certain risks by avoiding the situation by removing yourself from it.
Explain the reduction of risk
Reducing the probability of the rjsk occurring or reduce loss associated with it
Explain self funding
Whether you accept all the risk or reduce to some of it you will self fund the risk meaning taking on the financial burdens yourself
What would the decision to self fund be based on
Likelihood of risk occurring
Amount that may have to fund compared to level of financial resources
Availability and cost of other methods of funding
What other risks are being carried out
Explain why information is a way of risk management
Info is power and risks can be managed effectively if people, are informed about it
