Financial Risk Manager Part 2

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Explanation:

First, we calculate normal expected loss:

\text{Normal EL} = 7,000,000 \times 0.06 \times (1 - 0.8) + 9,000,000 \times 0.05 \times (1 - 0.9) = 129,000

Next, we calculate the expected loss under stress conditions:

\text{Stressed EL} = 7,000,000 \times 0.12 \times (1 - 0.8) + 9,000,000 \times 0.18 \times (1 - 0.9)

\text{Stressed EL} = (7,000,000 \times 0.12 \times 0.2) + (9,000,000 \times 0.18 \times 0.1)

\text{Stressed EL} = 168,000 + 162,000 = 330,000

Finally, the stress loss is the difference between the stressed expected loss and the normal expected loss:

\text{Stress Loss} = \text{Stressed EL} - \text{Normal EL} = 330,000 - 129,000 = 201,000

Explanation:

First, we calculate normal expected loss:

\text{Normal EL} = 7,000,000 \times 0.06 \times (1 - 0.8) + 9,000,000 \times 0.05 \times (1 - 0.9) = 129,000

Next, we calculate the expected loss under stress conditions:

\text{Stressed EL} = 7,000,000 \times 0.12 \times (1 - 0.8) + 9,000,000 \times 0.18 \times (1 - 0.9)

\text{Stressed EL} = (7,000,000 \times 0.12 \times 0.2) + (9,000,000 \times 0.18 \times 0.1)

\text{Stressed EL} = 168,000 + 162,000 = 330,000

Finally, the stress loss is the difference between the stressed expected loss and the normal expected loss:

\text{Stress Loss} = \text{Stressed EL} - \text{Normal EL} = 330,000 - 129,000 = 201,000

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Last updated: July 5, 2026 at 07:27

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$330,000

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