Question

Which of the following statements regarding risk management strategies is incorrect? Risk aggregation is to reduce...

Which of the following statements regarding risk management strategies is incorrect?

Risk aggregation is to reduce risks by being well diversified

Risk decomposition do not requires a detailed knowledge of the correlations between risks.

Risk aggregation do not requires a detailed knowledge of the correlations between risks.

Risk decomposition requires an in-depth understanding of individual risks.

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Answer #1

Risk decomposition refers to a procedure where risks are handled one by one.

Risk aggregation refers to a procedure where a portfolio of risks is considered.

Risk decomposition requires an in depth understanding of individual risks.Risk aggregation requires an understanding of the correlations between risks.

Option (C) Risk aggregation do not requires a detailed knowledge of the correlations between risks is incorrect

Hence, option (c) is the right answer of this question because risk aggregation requires an understanding of the correlations between risks.

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