Week10_journal
tejasri1607
Chapter25Slides.pptxITS 835 enterprise risk management Chapter 25
ERM - Uses of Efficient Frontier Analysis in Strategic Risk Management
University of Cumberlands
1
introduction
Strategic risk management framework
Modern portfolio theory
Practical application of risk measurement for insurance
Sample case study
Intended uses
University of Cumberlands
2
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
University of Cumberlands
3
Strategic risk management
University of Cumberlands
4
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
University of Cumberlands
5
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
University of Cumberlands
6
Sample case study
Three basic risks
Earthquake exposure to buildings
Workers’ compensation insurance
General liability insurance
University of Cumberlands
7
Portfolio options
University of Cumberlands
8
Earthquake options
University of Cumberlands
9
Workers’ compensation options
University of Cumberlands
10
General liability options
University of Cumberlands
11
Combined portfolio options
University of Cumberlands
12
Intended uses
Help large organizations
Risk management
Portfolio management
Insurance and non-insurance risks
Best fit
Established ERM
University of Cumberlands
13
