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ERM Concepts [30]

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Bullet points include: Statistical methodologies exist for measuring many types of risk (we shall explore some of them in later Sessions). If these methodologies are accurate then main focus becomes risk concentration and risk diversification. Concentrations involve ‘correlated’ risks. Some models also include limit in which risks are perfectly diversified (although not necessarily uncorrelated). There is uncertainty in both individual probabilities and in ‘correlation’ / co-movement characteristics and hence in size of diversification effects

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