Corporate Risk Management

Corporate Risk Management

Theories and Applications
Wiley Finance 1. Aufl.

von: Georges Dionne

60,99 €

Verlag: Wiley
Format: PDF
Veröffentl.: 22.04.2019
ISBN/EAN: 9781119583172
Sprache: englisch
Anzahl Seiten: 416

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<p><b>An updated review of the theories and applications of corporate risk management</b></p> <p>After the financial crisis of 2008, issues concerning corporate risk management arose that demand new levels of oversight. <i>Corporate Risk Management</i> 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.</p> <p>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:</p> <ul> <li>Includes a comprehensive review of the aspects of corporate risk management</li> <li>Presents statistical modeling that addresses recent risk management issues</li> <li>Contains an analysis of risk management failures that lead to the 2008 financial crisis</li> <li>Offers a must-have resource from author Georges Dionne the former editor of <i>The Journal of Risk and Insurance</i></li> </ul> <p><i>Corporate Risk Management </i>provides a modern empirical analysis of corporate risk management across industries. It is designed for use by risk management professionals, academics, and graduate students.</p>
<p>Foreword by <i>Denis Kessler</i> xiii</p> <p>Introduction xvii</p> <p>General Presentation xvii</p> <p>Contents of the Book xix</p> <p>Acknowledgments xx</p> <p>General References xxi</p> <p><b>Chapter 1 Risk Management: Definition and Historical Development 1</b></p> <p>1.1 History of Risk Management 2</p> <p>1.2 Milestones in Financial Risk Management 3</p> <p>1.3 Current Definition of Corporate Risk Management 7</p> <p>1.4 Conclusion 8</p> <p>References 9</p> <p><b>Chapter 2 Theoretical Determinants of Risk Management in Non-Financial Firms 11</b></p> <p>2.1 Value of Risk Management 12</p> <p>2.2 Comparative Advantages in Risk Taking 16</p> <p>2.3 Risk Management and Capital Structure 17</p> <p>2.4 Risk Management and Managerial Incentives 18</p> <p>2.5 Conclusion 19</p> <p>References 19</p> <p><b>Chapter 3 Risk Management and Investment Financing 21</b></p> <p>3.1 Basic Model 21</p> <p>3.2 Illustration with the Standard Debt Contract 27</p> <p>3.3 Model with Two Random Variables 28</p> <p>3.4 Conclusion 31</p> <p>References 31</p> <p>Appendix A: Value of dI*/dw 31</p> <p>Appendix B: Standard Debt Dcontract 32</p> <p><b>Chapter 4 Significant Determinants of Risk Management of Non-Financial Firms 35</b></p> <p>4.1 Rationale for the Research 35</p> <p>4.2 Significant Determinants 36</p> <p>4.3 Governance and Endogeneity of Debt 50</p> <p>4.4 Conclusion 60</p> <p>References 61</p> <p>Appendix: Construction of the Tax-Save Variable 62</p> <p><b>Chapter 5 Value at Risk 63</b></p> <p>5.1 Example of VaR 63</p> <p>5.2 Numerical Method 65</p> <p>5.3 Parametric Method 66</p> <p>5.4 Taking Time Periods into Consideration 67</p> <p>5.5 Confidence Interval of the VaR 68</p> <p>5.6 CVaR 69</p> <p>5.7 Conclusion 70</p> <p>References 71</p> <p><b>Chapter 6 Choice of Portfolio and VaR Constraint 73</b></p> <p>6.1 Optimal Benchmark Portfolio of the Firm 73</p> <p>6.2 Optimal Portfolio of a Constrained Manager 75</p> <p>6.3 Conclusion 77</p> <p>References 77</p> <p><b>Chapter 7 VaR in Portfolios of Assets and Options 79</b></p> <p>7.1 VaR as a Risk Measure 79</p> <p>7.2 Models without Derivatives 80</p> <p>7.3 VaR with Options 85</p> <p>7.4 Black and Scholes Model and Risk Management 88</p> <p>7.5 Delta-Gamma VaR 90</p> <p>7.6 VaR of a General Portfolio 90</p> <p>7.7 Application 92</p> <p>7.8 Conclusion 97</p> <p>References 97</p> <p><b>Chapter 8 Conditional VaR 99</b></p> <p>8.1 Motivation for CVaR and Coherence in Risk Measures 99</p> <p>8.2 Notation and VaR 101</p> <p>8.3 Definition of CVaR 104</p> <p>8.4 Another Way to Derive CVaR with a Return Distribution 107</p> <p>8.5 Example with Student’s <i>t</i>-Distribution and Other Examples 108</p> <p>8.6 Conclusion: CVaR in Basel Regulation 111</p> <p>References 111</p> <p><b>Chapter 9 Regulation of Bank Risk and Use of VaR 113</b></p> <p>9.1 Basel Accords 114</p> <p>9.2 Market Risk Regulation of 1996 120</p> <p>9.3 Specific Risks 120</p> <p>9.4 Total Required Capital 122</p> <p>9.5 Tests 124</p> <p>9.6 Comparison between Standard and Internal Methods with Interest Rate Risk 124</p> <p>9.7 Conclusion 133</p> <p>References 134</p> <p><b>Chapter 10 Optimal Financial Contracts and Incentives under Moral Hazard 135</b></p> <p>10.1 Optimal Financial Contracts and Moral Hazard 136</p> <p>10.2 Theoretical Model 140</p> <p>10.3 Empirical Application to Air Accident Risk 144</p> <p>10.4 Conclusion 148</p> <p>References 148</p> <p>Appendix A: Synthesis of Forms of Financial Contracts 149</p> <p>Appendix B: Definitions of Variables 150</p> <p><b>Chapter 11 Venture Capital Risk with Optimal Financing Structure 153</b></p> <p>11.1 Some Statistics about Venture Capital 154</p> <p>11.2 Role of Venture Capital Firms 155</p> <p>11.3 Venture Capital Firms and Added Value 156</p> <p>11.4 Role of Convertible Debt 156</p> <p>11.5 Information Asymmetry and Venture Capital 158</p> <p>11.6 Conclusion 163</p> <p>References 164</p> <p><b>Chapter 12 Bank Credit Risk: Scoring of Individual Risks 167</b></p> <p>12.1 Theoretical Model 169</p> <p>12.2 Empirical Analysis 171</p> <p>12.3 Credit Line and Loan Default 180</p> <p>12.4 Conclusion 182</p> <p>References 182</p> <p><b>Chapter 13 Portfolio Management of Credit Risk 185</b></p> <p>13.1 CreditMetrics 185</p> <p>13.2 Review of Chapters 2 and 3 of CreditMetrics 186</p> <p>13.3 KMV Approach 193</p> <p>13.4 Calculation of Correlations 196</p> <p>13.5 Conclusion 202</p> <p>References 202</p> <p><b>Chapter 14 Quantification of Banks’ Operational Risk 205</b></p> <p>14.1 Context and Presentation of Operational Risk 205</p> <p>14.2 Measurement of Regulatory Capital 208</p> <p>14.3 Calculation of Regulatory Capital for Losses of over $1 Million (LDA) 210</p> <p>14.4 Conclusion 227</p> <p>References 228</p> <p><b>Chapter 15 Liquidity Risk 231</b></p> <p>15.1 Theoretical Modeling of CDSs 232</p> <p>15.2 Bond Yield Spread’s Default Portion 233</p> <p>15.3 Empirical Measurement of Yield Spreads’ Default Portion 235</p> <p>15.4 Non-Default Portion of Yield Spreads 237</p> <p>15.5 Illiquidity Index 242</p> <p>15.6 Illiquidity Premium 244</p> <p>15.7 Data 244</p> <p>15.8 Principal Component Analysis of Liquidity Risk 245</p> <p>15.9 Empirical Analysis of Credit Cycles 246</p> <p>15.10 Regime Detection Model 248</p> <p>15.11 Detection of Default and Liquidity Regimes 250</p> <p>15.12 Conclusion 251</p> <p>References 252</p> <p><b>Chapter 16 Long-Term Capital Management 255</b></p> <p>16.1 Brief History of the Fund 256</p> <p>16.2 Risk Management, VaR, and Required Capital 258</p> <p>16.3 Portfolio Optimization and Leverage Effect 260</p> <p>16.4 Conclusion 261</p> <p>References 262</p> <p><b>Chapter 17 Structured Finance and the Financial Crisis of 2007–2009 263</b></p> <p>17.1 Structured Finance 263</p> <p>17.2 Poor Risk Management Linked to the Structured Finance Market 264</p> <p>17.3 Conclusion 266</p> <p>References 268</p> <p>Appendix: How to Create an AAA CDO Tranche from BBB Loans 269</p> <p><b>Chapter 18 Risk Management and Corporate Governance 271</b></p> <p>18.1 Enron and Corporate Governance 271</p> <p>18.2 Financial Crisis and Corporate Governance 273</p> <p>18.3 New 2002 Governance Rules 273</p> <p>18.4 Risk Management and Governance 274</p> <p>18.5 Administrative Competence of Board Members 276</p> <p>18.6 New Regulation for Financial Institutions 276</p> <p>18.7 Economic Analysis of Governance Effect 277</p> <p>18.8 Conclusion 288</p> <p>References 288</p> <p>Appendix A: Governance of Canadian Federal Financial Institutions 290</p> <p>Appendix B: Details on the Construction of the Governance Indexes 291</p> <p>Appendix C: Variables 293</p> <p><b>Chapter 19 Risk Management and Industrial Organization 295</b></p> <p>19.1 Entry, Production, and Hedging 295</p> <p>19.2 Commitment to Hedging 297</p> <p>19.3 Conclusion 297</p> <p>References 299</p> <p><b>Chapter 20 Real Implications of Corporate Risk Management 301</b></p> <p>20.1 Real Implications of Corporate Risk Management: A Review 302</p> <p>20.2 Methodology 303</p> <p>20.3 US Oil Producers 309</p> <p>20.4 Multivariate Results 316</p> <p>20.5 Conclusion 324</p> <p>References 324</p> <p>Appendix: Estimated MTEs 326</p> <p><b>Chapter 21 Exercises 331</b></p> <p>Exercise 1 Portfolio Choice and the Notion of Value at Risk (VaR) 331</p> <p>Exercise 2 Backtesting of VaR Models 345</p> <p>Exercise 3 Calculation of VaR with Different Distributions and Accuracy of VaR 351</p> <p>Exercise 4 VaR for an Equity Portfolio with Options 359</p> <p>Exercise 5 CVaR Conditional Value at Risk 369</p> <p>Conclusion 376</p> <p>Reference 376</p> <p>Conclusion 377</p> <p>General References 378</p> <p>Index 379</p>
<p><b>GEORGES DIONNE</b> is Professor and Canada Research Chair in Risk Management, Department of Finance, HEC Montréal, Quebec, Canada. He was Editor of <i>The Journal of Risk and Insurance</i> 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.
<p>Praise for<b> Corporate Risk Management</b> <p><i>"Corporate Risk Management: Theories and Applications</i> 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."</br> <b>—Denis Kessler, Chairman and Chief Executive Officer of the SCOR Group</b> <p><b>A comprehensive, one-stop resource for graduate students, academics, and finance professionals alike</b> <p>Corporate Risk Management examines the motivation for risk management and the measurement of its efficiency—providing 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. <p>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.