COMMERCE 4FR3 Lecture Notes - Lecture 1: Unemployment Benefits, Insurance Policy, Jaywalking

• School: McMaster University
• Department: Commerce
• Course: COMMERCE 4FR3
• Professor: Sumit Bose

Document Summary

2 principles of insurance: law of large numbers explains how insurance companies can charge a small premium for large loss exposures (i. e how insurers figure out how much to charge different classes of the insured) It will classify based on age, driving history, etc. Insurance industry holds 7. 5% of the assets of the 22 industries in cnd: employs more than 230,000 ppl. Risk: u(cid:374)(cid:272)ertai(cid:374)t(cid:455) a(cid:271)out the o(cid:272)(cid:272)urre(cid:374)(cid:272)e of a loss". Risk management: process of dealing with the consequences of being wrong: concentrate on limiting the size of the bed, or finding loopholes around the bed so you are not wiped out if you take the wrong side. Exogenous and endogenous risks how much control we have over the risk. Exogenous risk: risks we have no control over, not affected by our actions (eg. hurricanes and earthquakes) Endogenous risk: dependent on our actions (eg. smoking in bed, jay-walking, not studying for an exam)