Lecture 04 - Risk_Assessment_I

Lecture 04 - Risk_Assessment_I - Are You a Progressive...

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Are You a Progressive Thinker? Are you interested  Are You a Progressive Thinker? Are you interested  in Public Policy? in Public Policy? Come out and join the Cornell Chapter of the  Come out and join the Cornell Chapter of the  Roosevelt Institution. Roosevelt Institution. The Roosevelt Institution is a national network of  The Roosevelt Institution is a national network of  student think tanks that provides the organizational  student think tanks that provides the organizational  infrastructure to get student ideas into the public  infrastructure to get student ideas into the public  discourse. discourse. Meeting Time: Thursdays, 4:30-5:30 in Rockefeller  Meeting Time: Thursdays, 4:30-5:30 in Rockefeller  room 104. contact: mbd33 room 104. contact: mbd33
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Quantifying Risk Quantifying Risk What do we mean by “risk” to be managed in risk management? Value of losses in a typical year Uncertainty regarding losses Risk is quantified by a probability distribution of losses (X) Useful summary statistics include Expected value of loss E(X) Variance of loss Var(X)
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Alternative Measures of “Risk” Alternative Measures of “Risk” Distribution 1: Loss Probability $0 .90 $5000 .10 Distribution 2: Loss Probability $6,000 .80 $10,000 .20 Which distribution involves more “risk”?
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Expected Value Expected Value The average value of the outcome over many
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This note was uploaded on 05/07/2009 for the course PAM 4230 taught by Professor Tennyson during the Spring '07 term at Cornell University (Engineering School).

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Lecture 04 - Risk_Assessment_I - Are You a Progressive...

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