Purpose – The purpose of this paper is to explore the roles of diversification, hedging, and a third risk-reduction process – “pacification” – in risk finance. Design/methodology/approach – After briefly reviewing the concepts of diversification and hedging, a simple mathematical...

Purpose – The paper aims to explore a risk-finance context in which less information may be preferable to more information. Design/methodology/approach – Insurance companies collect a variety of information on potential policyholders to support two fundamental components of risk...

Purpose – The paper aims to explore a risk-finance context in which less information may be preferable to more information. Design/methodology/approach – Insurance companies collect a variety of information on potential policyholders to support two fundamental components of risk...

Purpose – The purpose of this paper is to explore the roles of diversification, hedging, and a third risk-reduction process – “pacification” – in risk finance. Design/methodology/approach – After briefly reviewing the concepts of diversification and hedging, a simple mathematical...

Purpose – The purpose of this paper is to present a simulation-based approach for modeling multi-year non-life insurance risk in internal risk models. Strategic management in an insurance company requires a multi-year time horizon for economic decision making, for example, in the context of...

Purpose – This editorial, the second of a two-part series, proposes a new measure of risk for analyzing highly non-normal (i.e. asymmetric and long-tailed) random variables in the context of both investment and insurance portfolios. The proposed measure replaces the p-norm-based definition of...

Purpose – In this two-part series, this paper seeks to consider certain intriguing aspects of randomness, the basic mathematical concept used to model financial risk and other unknown quantities in the physical world. Design/methodology/approach – Part 1 applies concepts from quantum physics...

Purpose – The purpose of this paper is to consider the problem of allocating responsibility for risk through a simple classroom vignette that illustrates some of the difficulties encountered in more complex real-world scenarios. Design/methodology/approach – After considering a number of ad...

Purpose – To consider why the law of large numbers does not play a more significant role in determining an insurer's financial leverage. Design/methodology/approach – Insurer-group data show that there is little relationship between an insurer's premium volume and its overall leverage (i.e....

Purpose – The purpose of this paper is to present a simulation-based approach for modeling multi-year non-life insurance risk in internal risk models. Strategic management in an insurance company requires a multi-year time horizon for economic decision making, for example, in the context of...