An updated review of the theories and applications of corporate risk management
After the financial crisis of 2008, issues concerning corporate risk management arose that demand new levels of oversight. Corporate Risk Management is an important guide to the topic that puts the focus on the corporate finance dimension of risk management. The author--a noted expert on the topic--presents several theoretical models appropriate for various industries and empirically verifies theoretical propositions. The book also proposes statistical modeling that can evaluate the importance of different risks and their variations according to economic cycles.
The book provides an analysis of default, liquidity, and operational risks as well as the failures of LTCM, ENRON, and financial institutions that occurred during the financial crisis. The author also explores Conditional Value at Risk (CVaR), which is central to the debate on the measurement of market risk under Basel III. This important book:
* Includes a comprehensive review of the aspects of corporate risk management
* Presents statistical modeling that addresses recent risk management issues
* Contains an analysis of risk management failures that lead to the 2008 financial crisis
* Offers a must-have resource from author Georges Dionne the former editor of The Journal of Risk and Insurance
Corporate Risk Management provides a modern empirical analysis of corporate risk management across industries. It is designed for use by risk management professionals, academics, and graduate students.
Autorentext
GEORGES DIONNE is Professor and Canada Research Chair in Risk Management, Department of Finance, HEC Montréal, Quebec, Canada. He was Editor of The Journal of Risk and Insurance from 2007 to 2013, and member of the HEC Montréal Board of Directors from 2009 to 2015. He received the Innis-Gérin Medal in 2011 for his contribution to social sciences in Canada.
Klappentext
Praise for Corporate Risk Management
"Corporate Risk Management: Theories and Applications is not just a manual, it is also a faithful companion for academics wishing to update their knowledge and for all company directors who want the most appropriate instruments to manage both the risks they have decided to take on and those that are imposed on them." Denis Kessler, Chairman and Chief Executive Officer of the SCOR Group
A comprehensive, one-stop resource for graduate students, academics, and finance professionals alike
Corporate Risk Management examines the motivation for risk management and the measurement of its efficiencyproviding theoretical models under information asymmetry that justify risk management, modern empirical analyses of theoretical propositions, and statistical models that identify risks and their variations in different economic cycles.
Focusing on corporate financial aspects of risk management, this timely book covers over 20 subjects of risk management, particularly default, liquidity, and operational risks that arose during and after the 2008 financial crisis. Examination of Conditional Value at Risk (CVaR) in the measurement of market risk under Basel III illustrates current debates in the field, while detailed investigations of events such as the Enron bankruptcy, the failure of the Long Term Capital Management (LTCM) fund and the 2008 financial crisis exemplify corporate governance failure and its consequences to effective risk management.
Inhalt
Foreword by Denis Kessler xiii
Introduction xvii
General Presentation xvii
Contents of the Book xix
Acknowledgments xx
General References xxi
Chapter 1 Risk Management: Definition and Historical Development 1
1.1 History of Risk Management 2
1.2 Milestones in Financial Risk Management 3
1.3 Current Definition of Corporate Risk Management 7
1.4 Conclusion 8
References 9
Chapter 2 Theoretical Determinants of Risk Management in Non-Financial Firms 11
2.1 Value of Risk Management 12
2.2 Comparative Advantages in Risk Taking 16
2.3 Risk Management and Capital Structure 17
2.4 Risk Management and Managerial Incentives 18
2.5 Conclusion 19
References 19
Chapter 3 Risk Management and Investment Financing 21
3.1 Basic Model 21
3.2 Illustration with the Standard Debt Contract 27
3.3 Model with Two Random Variables 28
3.4 Conclusion 31
References 31
Appendix A: Value of dI*/dw 31
Appendix B: Standard Debt Dcontract 32
Chapter 4 Significant Determinants of Risk Management of Non-Financial Firms 35
4.1 Rationale for the Research 35
4.2 Significant Determinants 36
4.3 Governance and Endogeneity of Debt 50
4.4 Conclusion 60
References 61
Appendix: Construction of the Tax-Save Variable 62
Chapter 5 Value at Risk 63
5.1 Example of VaR 63
5.2 Numerical Method 65
5.3 Parametric Method 66
5.4 Taking Time Periods into Consideration 67
5.5 Confidence Interval of the VaR 68
5.6 CVaR 69
5.7 Conclusion 70
References 71
Chapter 6 Choice of Portfolio and VaR Constraint 73
6.1 Optimal Benchmark Portfolio of the Firm 73
6.2 Optimal Portfolio of a Constrained Manager 75
6.3 Conclusion 77
References 77
Chapter 7 VaR in Portfolios of Assets and Options 79
7.1 VaR as a Risk Measure 79
7.2 Models without Derivatives 80
7.3 VaR with Options 85
7.4 Black and Scholes Model and Risk Management 88
7.5 Delta-Gamma VaR 90
7.6 VaR of a General Portfolio 90
7.7 Application 92
7.8 Conclusion 97
References 97
Chapter 8 Conditional VaR 99
8.1 Motivation for CVaR and Coherence in Risk Measures 99
8.2 Notation and VaR 101
8.3 Definition of CVaR 104
8.4 Another Way to Derive CVaR with a Return Distribution 107
8.5 Example with Student's t-Distribution and Other Examples 108
8.6 Conclusion: CVaR in Basel Regulation 111
References 111
Chapter 9 Regulation of Bank Risk and Use of VaR 113
9.1 Basel Accords 114
9.2 Market Risk Regulation of 1996 120
9.3 Specific Risks 120
9.4 Total Required Capital 122
9.5 Tests 124
9.6 Comparison between Standard and Internal Methods with Interest Rate Risk 124
9.7 Conclusion 133
References 134
Chapter 10 Optimal Financial Contracts and Incentives under Moral Hazard 135
10.1 Optimal Financial Contracts and Moral Hazard 136
10.2 Theoretical Model 140
10.3 Empirical Application to Air Accident Risk 144
10.4 Conclusion 148
References 148
Appendix A: Synthesis of Forms of Financial Contracts 149
Appendix B: Definitions of Variables 150
Chapter 11 Venture Capital Risk with Optimal Financing Structure 153
11.1 Some Statistics about Venture Capital 154
11.2 Role of Venture Capital Firms 155
11.3 Venture Capital Firms and Added Value 156
11.4 Role of Converti...