Discussion On ERM

Chapter 22 presented a case study in creating value from uncertainty, and chapter 25 presented the use of efficient frontier analysis in SRM. Assume you are the project lead for the analysis team that uses Efficient Frontier Analysis to evaluate risks of the portfolio presented in chapter 25. How would you explain the results of the analysis to non-technical decision makers? What recommendation would you make, assuming the risk appetite presented in chapter 25?
To complete this assignment, you must do the following:

A) As indicated above, assume you are the project lead for the analysis team that uses Efficient Frontier Analysis to evaluate risks of the portfolio presented in chapter 25. How would you explain the results of the analysis to non-technical decision makers? What recommendation would you make, assuming the risk appetite presented in chapter 25?

ANSWER ALL OF THE QUESTIONS ABOVE IN YOUR THREAD

ITS 835 Chapter 25

Uses of Efficient Frontier Analysis in Strategic Risk Management

Enterprise Risk Management

Dr. Les Stovall

 

 

Introduction

• Strategic risk management framework • Modern portfolio theory • Practical application of risk measurement for insurance • Sample case study • Intended uses

 

 

Strategic Risk Management Framework

• Enables organization to discover risks • Across organizational boundaries

• Continuous cycle • Considers interactions of multiple risks • Combines risk appetite and risk tolerance • Defines exploitable risks

 

 

Strategic Risk Management

 

 

Modern Portfolio Theory

• Mathematical model – from 1950s • Risk is standard deviation

• When portfolio is weighted combination of assets

• Rp – return of portfolio • Ri – return of asset i • Wi – weighting of asset i

 

 

Practical Application of Risk Measurement for Insurance

• Purpose is to optimize insurance placements • And risk limits

• Tail value at risk of loss – TVaRL • Expected value of loss, given that an event has occurred

 

 

Sample Case Study

• Three basic risks • Earthquake exposure to buildings

• Workers’ compensation insurance

• General liability insurance

 

 

Portfolio Options

 

 

Earthquake Options

 

 

Workers’ Compensation Options

 

 

General Liability Options

 

 

Combined Portfolio Options

 

 

Intended Uses

• Help large organizations • Risk management

• Portfolio management

• Insurance and non-insurance risks • Best fit

• Established ERM

 
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