Why does a risk manager typically focus on the upper tail of the probability distribution?
A) The upper tail shows the amount of coverage of the risk a firm faces.
B) The upper tail shows the total risk pool.
C) The upper tail shows the confidence interval of the loss distribution.
D) The upper tail shows the sum of the estimated mean loss plus the risk charge.

Question

Quizplus · Accepted Answer

Risk managers focus on the upper tail of the probability distribution because it represents extreme loss events, which are critical for determining the sum of the estimated mean loss plus the risk charge, helping in assessing potential financial impacts and ensuring adequate risk mitigation strategies.

Why Does a Risk Manager Typically Focus on the Upper