Chapter 10: Risk Management Objective Risk and Financial Decision Making Conceptual Framework for Risk Management Efficient Allocation of Risk-Bearing Copyright © Prentice Hall Inc. 2000. Author: Nick Bagley, bdellaSoft, Inc.

10.1 What is Risk? 10.2 Risk and Economic Decisions 10.3 The Risk Management Process 10.4 The Three Dimensions of Risk Transfer 10.5 Risk Transfer and Economic Efficiency 10.6 Institutions for Risk Management 10.7 Portfolio Theory: Quantitative Analysis for Optimal Risk Management 10.8 Probability Distributions of Returns 10.9 Standard Deviation as a Measure of Risk

s = 0.2000 s = 0.1421 s* = 0.1342 Theoretical Minimum

Equation for Homogeneous Diversification with n Stocks

Returns on GENCO & RISCO

Equations: Mean

Equations: Standard Deviation