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Lecture1 - MGMT 4370 MGMT 7760 Risk Management Aparna Gupta...

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9/3/2010 1 MGMT 4370 / MGMT 7760 Risk Management Aparna Gupta Lally School of Management and Technology Office: PITTS 2104 Email: [email protected] Phone: x2757 What is Risk? And why should we bother? • Risk – Variability that can be quantified in terms of probabilities. (reserving ‘variability that cannot be quantified at all’ for ‘uncertainty’) Risk is everywhere – future cannot be predicted The intuitive commonsense of Risk-Reward coupling – No risk; no reward T ki i k i ibl l if it lt i t – Taking on more risk is sensible only if it results in greater likelihood of greater reward! – Appetite for risk determines what reward one seeks And the good news is – Risk can be Managed
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9/3/2010 2 Types of Risk – The LIST! Risk: volatility of returns leading to ‘unexpected losses’ with higher volatility indicating higher risk. • Volatility of returns is directly or indirectly affected by Volatility of returns is directly or indirectly affected by numerous variables – called
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