MtT Type Risk Combination

Company A is concerned with five different MtT type risks from its supplier, B. The first and second risks are L-type risks and the corresponding M values are 540,000 and 390,000. The third and fourth risks are S-type risks and the corresponding M+ values are 760,000 and 560,000. The last one is an N-type risk and the maximum possible loss is 1,200,000. In the worst case, impact to company A caused by supplier B is estimated as 2,500,000. A wants to know the total possible loss at 95% confidence level. 

Company A calculates the risk value for each MtT type risk by setting a = 0.95 as 510,000, 350,000, 710,000, 480,000, and 1,000,000 respectively. Then, following the approximation given by Equations 7.16 and 7.17, A can get the combined risk as follows  

This means that in 95% of all cases, the loss will not be larger than 2,211,250 due to all the MtT type risks. 

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