RMI 2101 Lecture Notes - Lecture 1: Systemic Risk, Moral Hazard, Vehicle Insurance

• School: Temple University
• Department: Risk Management and Insurance
• Course: RMI 2101
• Professor: John V.Dormuth( P)

Document Summary

Pure risk: focus of traditional risk management (trm, a loss or events which produce a loss, losses in financial terms, losses to individuals or firms (any organization) Ex. suppose a loss with known certainty probability = 100% or 1. Budget for the loss: probability of a loss, chance of a loss, likelihood of a loss. Probability of a loss does not equal risk. Uncertainty regarding the loss that makes pure risk an issue. Impossible event (no risk, 0, 0%) certain event (no risk, 1, 100%) Pure risk vs speculative risk: both involve uncertainty, difference is in the outcomes, pure risk. Random events- ex. flood, fire, theft, sickness or death. Since there is no chance of gain, always undesirable: speculative risk. Outcomes: loss, gain, no loss, no gain. Ex. gambling, stocks, bonds, new business, new product line. Speculative risk (enterprise risk management) (erm) (risk management with finance) Risk affected by only some individuals, groups, firms, industries: non-diversifiable risk.