Corporate Risk Management for Value Creation

Publication Date	July 2007
Publisher	Risk Books
Product Type	Book
Pages	242
ISBN Number	9781904339830
Product Code	RIS00371

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Summary

Which risk metric is right for your business? How do you compare two projects with differing risk / return profiles? And, which hedging ratio is appropriate?

This guide to implementation describes in stylised terms the path travelled by the author as he set up the risk management organisation at a global aluminium and packaging company. Corporate Risk Management and Value Creation presents a synthesis of academic research and integrates it into a practical approach that is readily useable by corporations. You will benefit from an invaluable understanding and practical applications in the areas of:

The mechanics of value creation;
Modelling and financial flexibility;
How to maximise operational and strategic flexibility;
How to enhance capital allocation and performance management;
Enterprise risk analysis;
Risk capital;
Risk management strategy;
Monte carlo simulations;

The concepts and methods explained bring you genuine examples from financial and industrial firms using concepts derived from a number of leading articles. This information is directly applicable to both financial and non-financial firms.

Concentrating on implementation and providing clear answers to practical questions, this title is recommended reading for chief risk officers, risk management directors and chief financial officers, but also treasurers, investment bankers and anyone in the decision making chain wishing to gain an insight into value creation from Risk Management.

Content

1 Introduction
- 1.1 The risk management paradox
- 1.2 The value of risk management
- 1.3 Objectives and structure of this book
- 1.A A few words on probabilities
- 1.A.1 Sample space and random variables
- 1.A.2 Discrete random variables
- 1.A.3 Continuous random variables
- 1.A.4 Covariance revisited
Part I: Risk management: what
2 Value creation from risk management
- 2.1 The universe of risks
- 2.2 Providing financial flexibility at minimum cost
- 2.3 Enhancing capital allocation and performance management
- 2.4 Maximizing operational and strategic flexibility
- 2.5 An integrated approach to risk management
- 2.6 Concluding thoughts
- 2.A Modigliani-Miller irrelevance results
- 2.B Risk typologies
- 2.C Mapping to "standard" value creation levers
- 2.D Valuation fundamentals
- 2.E Calculations for examples 17 and 22: the pharmaceutical company
- 2.F Calculations for example 18: the oil company
- 2.G Risk adjustment
- 2.H Calculation for example 20: the option value
3 A review of risk management practices
- 3.1 Managing with volatility: Enterprise Risk Management
- 3.2 Measuring volatility: Value at Risk, Cash Flow at Risk, Economic Capital
- 3.3 Managing volatility: hedging and derivatives
- 3.4 What comes next?
Part II: Risk management: how
- 4 Enterprise risk analysis
  - 4.1 outside-in risk measurement
  - 4.2 inside-out risk identification and measurement
  - 4.3 Multi-period analyses
  - 4.4 Specificity of enterprise risk analysis
  - 4.A Coal-fired plant profit under emission trading
  - 4.B The aluminum smelter example
- 5 Risk capital
  - 5.1 One-period firm
  - 5.2 Risk capital for a multi-period firm
  - 5.3 Concluding remarks
  - 5.A Cost of capital comparisons
  - 5.B One period Bernoulli example
  - 5.C Multiperiod Bernoulli
- 6 Risk management strategy
  - 6.1 A simplified risk management analysis framework
  - 6.2 Optimal risk management strategy
  - 6.3 Monte Carlo simulations
  - 6.4 Changes in the firm's business environment
  - 6.5 Concluding observations
  - 6.A Derivations of the optimal risk management strategy
- 7 Conclusion
  - 7.1 Advice to current Chief Risk Officers
  - 7.2 The path forward
Bibliography
Index