RMI 2101 Lecture 4: Topic 4

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

Document Summary

Topic 4- measurement and evolution of exposures to loss. 2nd step in risk management process, analyze exposures to loss. Example: firm makes 2 shipments per month (a + b) Some shipments do not arrive as they are stolen or lost. Each shipment has a value of . Past information, believe probability of any shipment not arriving is . 2 = 20% Rules of probability: compound or joint outcomes. P [a and b do not arrive]= . 2 x. 2: mutually exclusive events. They cannot occur at the same time. P [a or b] = p(a) + p(b) When 2 or more events can occur within a specified time period: nonmutually exclusive events. P (a or b or both) = p(a) + p (b) p(a and b) P (a or b but not both)= [p(a) x (1-p(b))] + [p(b) x (1-p(a)): a priori probability (prior to) All outcomes are mutually exclusive: statistical probability.