The Classical Expected Utility Theory And The Dual Theory Of Risk

Speaker's notes: Risk is an everyday part of financial life. There are few decisions we can make which do not come with some degree of risk. However, it is important to understand and distinguish between different types of risks so we can better 'hedge' against potential unforeseen events and minimize our institution's exposure to financial dangers.

When we delve into the word 'risk ', we find that it has a multitude of meanings, and that it is nowhere near as clear and precise as the advocates of traditional risk assessment assert, for example Hansson (2002) identifies five different common uses for the word risk, and Ekberg points out a "proliferation of risk definitions" and a whole range of different understandings of risk (2007 p345).

b) Risk management: The identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks.

If the assumption of risk was not applicable in this activity then there would be an ability

The second point is usually suggested in a number of ways. We should understand there is a risk-and-return trade-off and therefore conclude one can price the risk into the contract.

A risk is defined in the Merriam Webster’s Collegiate Dictionary (2006) as a “possibility of loss or injury; to expose to hazard or danger.” Risk management is the act of evaluating and identifying problems that can arise. Also, identifying ways to void or overcome these problems.

The analysing of risks and implementation of risk controls to minimise and prevent risks from occurring to the business.

Financial risk is the risk a corporation faces due to its exposure to market factors such as interest rates, foreign exchange rates, commodities and stock prices. Financial risks for the most part, can be hedged due to the existence of large, efficient markets through which these risks can be transferred. This is unlike operating risk, which is associated with more manufacturing and marketing activities. Operating risk cannot be hedged because these risks are not traded.

There is no single definition of risk. Many insurance authors traditionally have defined risk for uncertainty. A risk is an uncertainty concerning the occurrence of a loss.

Other risks must be prioritized and managed in accordance to their probability of occurring. Actuarial tables – statistical analysis of the probability of any risk occurring, and the potential financial damage ensuing from the occurrence of those risks – may be accessed online and can provide guidance in prioritizing risk.

I have to admit I was pleasantly surprised by Against the Gods. I expected this book to be a typical dry book on a given financial subject, detailing use, application, and theory. I completely took for granted the fact that math, particularly risk, has history. The author did a fantastic job of painting a picture and explaining how, why and when concepts we use today came into being. While reading this book I became excited about risk and statistical analysis. The author is Peter L. Bernstein graduate of Harvard, economist, educator, and historian. He lived from January 1919 to June 2009. Bernstein is best remembered for his contributions in investment

The basic definition of risk is the uncertainty of the loss for the company. Risk management strategy refers to the company according to their own conditions and external environment, around the company development strategy to determine the risk tolerance, risk appetite, risk management effectiveness of the standard, select the risk, risk transfer, risk aversion, risk hedging, risk conversion, risk control and other appropriate risk management tools, and to determine the principles of human and financial resources required for risk management. (Mark,L.2011)

“Risk definition can either be objective or subjective. Risk which relies on probability alone, such as coin flipping or dice throwing, is considered to be objective. However, when the consequences of risk need to be assessed along with its expectation of occurrence, it is categorized as subjective risk.” In this definition author categorized risk as objective

 analysing the risks to determine the level of risk, which is defined as the

Risk management is an activity which integrates recognition of risk, risk assessment, developing strategies to manage it, and mitigation of risk using managerial resources. Some traditional risk managements are focused on risks stemming from physical or legal causes (e.g. natural disasters or fires, accidents, death). Financial risk management, on the other hand, focuses on risks that can be managed using traded financial instruments. Objective of risk management is