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The portion of total risk that remains after unacceptable risk has been determined is .?
total
What is used as a measure of total risk?
The standard deviation or volatility (square root of the variance) of returns.
Distingush between systematic and unsystematic risks which is often regarded as the only relevant risk and why?
It is the risk which is due to the factors which are beyond the control of the people working in the market and that's why risk free rate of return in used to just compensate this type of risk in market. This is the risk other than systematic risk and which is due to the factors which are controllable by the people working in market and market risk premium is used to compensate this type of risk. Total Risk = Systematic risk + Unsystematic Risk As systematic risk is beyond the control of people working in market that;s why it is defenately not the relevent risk because anything not controllable is irrelevant and that's why unsystematic risk is the relevant risk because it is in the control of investor to in which security to invest or not.
What is risk aggregation?
AGGREGATION OF RISKS There has been much discussion of the RAROC and VaR methodologies as an approach to capture total risk management. Yet, frequently, the risk decision is separated from risk analysis. If aggregate risk is to be controlled, this or a similar methodology needs to be integrated more broadly and more deeply into the banking firm. Both aggregate risk methodologies presume that the time dimensions of all risks can be viewed as equivalent. A trading risk is similar to a credit risk, for example. This appears problematic when market prices are not readily available for some assets and the time dimensions of different risks are dissimilar. Yet, thus far no one firm has tried to address this issue adequately.
How to calculate the eml estimated maximum loss?
First of all you need to clarify the types of risks and the limits which you are ready to accept for ex. per office you are ready to accept 1mln and per shop 500K. Then you need to check, is this risk already insured by your company or not, becouse in case if it is already insured part of it or contents you will have comulation. then you need to check survey report and clarify the point of spreading for ex. fire risk and damage that it can make, if for example you have wooden floore in 2 storey building it means that the contents loss will be 100% due to fire and fall from second to the first floor. thent in case of food stock the EML will be 100% becouse of contamination due to fire or smoke. so at the final you have approximate EML on building 60-70% stock for example 100% building value 1 mln (700K EML) stock 5mln (EML 1mln) = 6mln EML then you are calculating your acceptance limit as I said in the first sentence yuo need to have acceptance limit per risk type and lets imagine that the warehose acceptance limit in our company is 2 mln 2 000 000 (acceptance limit)/6 000 000 (EML) * 100 = 33% but it is better not to accept the full 33% take 30% to allow a margin for future increase in the sum insured
