A risk-based risk finance paradigm
AbstractWe propose an alternative to the conventional risk finance paradigm of enterprise risk management that accounts for not only a loss portfolio’s expected frequency and expected severity, but also its “risk” as captured by an appropriate measure of dispersion/spread. This new paradigm is based upon four distinct properties of a loss portfolio that enhance the benefits of diversification: (1) a high expected frequency; and (2) less-than-perfect positive correlations between individual severities; (3) light-tailed severities; and (4) a predictable (i.e. non-erratic) frequency.
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Bibliographic InfoArticle provided by Capco Institute in its journal Journal of Financial Transformation.
Volume (Year): 35 (2012)
Issue (Month): ()
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risk finance paradigm; enterprise risk; enterprise risk management; loss portfolio; ERM;
Find related papers by JEL classification:
- G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
- G17 - Financial Economics - - General Financial Markets - - - Financial Forecasting and Simulation
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
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