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Enterprise Risk
Management and
Related Topics
Agenda
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Loss Forecasting
The risk manager can predict losses using
several different techniques:
Probability analysis
Regression analysis
Forecasting based on loss distribution
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In-class Assignment
Case Application (pg. 86 - 87)
20-25 minutes to complete
Turn in at the end of class
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In-class Assignment
(a)
(1) GWS could sell oil futures contracts to
hedge the fuel oil price risk.
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In-class Assignment
(a)
(2) GWS may also consider a double-trigger
option insurance arrangement using fuel oil
prices and property losses as triggers.
Under the double-trigger option, the insurer
would only make a payment to GWS if both
contingencieshigh fuel prices and high
property lossesoccurred.
Copyright 2017 Pearson Education, Inc. All rights reserved.
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In-class Assignment
(b)Using 10 percent as the discount rate,
the NPV of this project is $22,171.30 as
shown below:
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In-class Assignment
(c) As the independent variable is thousands
of miles traveled, the expected 640,000
miles is entered into the prediction as 640.
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