The changing nature of work throughout the world is studied by Which discipline tries to predict economic patterns? Inequality is most closely connected to which economic theory? does neoclassical economic

The changing nature of work throughout the world is studied by Which discipline tries to predict economic patterns? Inequality is most closely connected to which economic theory? does neoclassical economic theory argue? For the extensive-form game depicted below
A
Player 1
B
Player 2
L
R
L
R
3
(3 )
( 3 )
3
(a) Write down the normal-form of the game.
(b) Find all pure strategy NE of the game. 3. The table below contains information about the total utility Jerry gains from coffee he buys from the Corner Shop.
Cups of coffee
1
2
3
4
5
Total Utility, $
1.50
2.70
3.60
3.60
2.00
3a. Does this example exhibit the Principle of diminishing marginal utility? Explain. (5 points) Humber is a small life insurance company based in the U.S. It has two
primary lines of business:
I.
Group health benefits
II.
Individual term life insurance
Humber has been slow to adopt current ERM best practices due to its lack of expertise
and resources in this practice area. It currently does not have a centralized risk function
or an economic capital model. It employs ERM at a line of business level, which
includes performing scenario testing and stress testing of business-specific risks. It does
not fully aggregate risks or perform scenario or stress testing at a company-wide level.
Humber’s corporate actuarial department is assessing what the company needs to do to
implement the new Own Risk and Solvency Assessment (ORSA) requirements.
(a)
(2 points) Explain how Humber will need to adjust its current ERM practices in
order to comply with the new ORSA requirements.
(b)
(1 point) Describe how complying with the ORSA requirements could benefit
Humber’s risk management.
Humber’s corporate actuarial department contacts Horton Consulting about ORSA.
Horton offers an expensive but comprehensive set of services that could Humber
develop ORSA capabilities that would be consistent with the capabilities of its larger
competitors.
(c)
(2 points) Provide arguments for why Humber may not wish to purchase
Horton’s services. (10 points) Simcoe’s ERM team is reviewing the company’s risk budgeting and capital
management practices. The CRO would like to analyze Simcoe’s current capital
allocation methodology and has asked for your .
The company currently uses the Discrete Marginal Contribution method in determining
the risk budget for each line of business. You are provided with the following:
Line of
Risk Budget
Standalone VaR
Business
($ millions)
($ millions)
A
47.8
50.0
B
24.5
30.0
C
40.9
60.0
Total
113.2
Correlations between Simcoe’s lines of business:
PAB = 0.9
Pic = 0.4
PBE = 0.2
(a) (/ point) Describe how diversification s Simcoe’s risk management.
The CRO wants you to evaluate the following two alternative approaches for allocating
the company’s capital:
Pro-Rata
II.
Shapley Value
You have been given the information below:
Line of
Total VaR
Unscaled Discrete
Business
Excluding Business X
Marginal Contribution
(X, )
($ millions)
($ millions)
A
72.3
41.0
B
92.2
21.0
C
78. 1
35.1
Total
97.1 (b) (5 points)
(i)
Explain what the Shapley Value allocation method tries to accomplish in
risk allocation and the assumptions underlying the method.
(ii)
Calculate all missing table values below using the Shapley Value Method:
Shapley Value VaR
Line of
1* In
2nd In
Last In
Average
Business
Contribution
Calculations
Contribution
Shapley Value
A
B
C
Total
113.2
97.1
Show your work.
(c) (3 points)
(i)
Summarize the results of your calculations for the two alternative capital
allocation methods, I and II, for the CRO.
(ii)
Explain how each line of business leader may react to the potential change
in the risk budgeting approach.
(d)
(/ point) Recommend one of the three approaches to set risk budgets for Simcoe.
Justify your answer,

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