Casualty Actuarial Society (CAS) Practice Exam

The six commonly used basic risk measures encompass exposure, volatility, likelihood, consequences, time horizon, and correlation.

Exposure refers to the extent to which an entity is subject to loss, highlighting the potential impact of risk. Volatility is a measure of the degree of variation of a trading price series over time, which is critical for understanding how unpredictable an asset or portfolio is. Likelihood pertains to the probability of a risk event occurring, helping in assessing how often a particular risk may manifest.

Consequences denote the potential negative impacts or losses that could arise from the occurrence of a risk event, emphasizing the importance of understanding the severity of possible outcomes. Time horizon reflects the specific timeframe over which risks are assessed, crucial for aligning risk management strategies with the duration of exposure. Lastly, correlation measures the degree to which two securities move in relation to each other, providing insight into diversification benefits and the interconnectedness of various risks.

These foundational concepts form an essential part of risk management frameworks, equipping professionals to analyze and mitigate risks effectively. The other options listed involve various domains of risk (liquidity, operational, market, credit, etc.) but do not encapsulate the fundamental measures of risk in the same comprehensive manner as the correct choice does.