Risk Assessment - Simple Measures

Question 1

What are the advantage and disadvantage of Maximum loss?

Answer 1

Is the highest possible loss or damage for a given activitiy

Advantage:
-Simple to calculate
-Probability of the maximum loss is not
needed for computation (it might be
unknown)

Disadvantage:
-Probabilities are not considered
-Investment or Capital is not taken into account

Question 2

What are the advantage and disadvantage of Expected Loss/ Expected relative Loss?

Answer 2

Probability of the maximum loss is not needed for computation (it might be unknown)

Advantage:
-Probabilities are taken into account
-also other losses are considered in the calculation

Disadvantage:
-Investment or capital is not taken into account

Question 3

What does the Volatility of a project/stock stands for?

Answer 3

The higher the volatility the higher the fluctuation which can end in a higher loss also a higher profit. So from the perspective risk management a higher volatility of stock or project stands for a riskier option.