Corporate risk management : theories and applications / Georges Dionne.

Format:

Book

Author/Creator:

Dionne, Georges, author.

Series:

Wiley finance series.

Wiley Finance Series

Language:

English

Subjects (All):

Risk management.

Physical Description:

1 online resource (419 pages).

Edition:

1st edition

Place of Publication:

Hoboken, New Jersey : Wiley, [2019]

System Details:

text file

Summary:

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.

Contents:

Cover

Title Page

Copyright

Contents

Foreword

Introduction

General Presentation

Contents of the Book

Acknowledgments

General References

Chapter 1 Risk Management: Definition and Historical Development

1.1 History of Risk Management

1.2 Milestones in Financial Risk Management

1.3 Current Definition of Corporate Risk Management

1.4 Conclusion

References

Chapter 2 Theoretical Determinants of Risk Management in Non‐Financial Firms

2.1 Value of Risk Management

2.1.1 Expected Default Costs

2.1.2 Risk Premium to Stakeholders

2.1.3 Expected Tax Payments

2.2 Comparative Advantages in Risk Taking

2.3 Risk Management and Capital Structure

2.4 Risk Management and Managerial Incentives

2.5 Conclusion

Chapter 3 Risk Management and Investment Financing

3.1 Basic Model

3.2 Illustration with the Standard Debt Contract

3.3 Model with Two Random Variables

3.4 Conclusion

Appendix A: Value of dI*/dw

Appendix B: Standard Debt Contract

Chapter 4 Significant Determinants of Risk Management of Non‐Financial Firms

4.1 Rationale for the Research

4.2 Significant Determinants

4.2.1 Target Variable or Dependent Variable

4.2.2 Main Determinants and Their Measurement

4.2.3 Results of Estimations

4.3 Governance and Endogeneity of Debt

4.3.1 Model

4.3.2 Statistical Analysis

4.3.3 Empirical Results

4.4 Conclusion

Appendix: Construction of the Tax‐Save Variable

Chapter 5 Value at Risk

5.1 Example of VaR

5.2 Numerical Method

5.3 Parametric Method

5.4 Taking Time Periods into Consideration

5.5 Confidence Interval of the VaR

5.6 CVaR

5.7 Conclusion

Chapter 6 Choice of Portfolio and VaR Constraint

6.1 Optimal Benchmark Portfolio of the Firm.

6.2 Optimal Portfolio of a Constrained Manager

6.3 Conclusion

Chapter 7 VaR in Portfolios of Assets and Options

7.1 VaR as a Risk Measure

7.2 Models without Derivatives

7.2.1 Markowitz's Mean‐Variance Model

7.2.2 CAPM

7.2.3 Multifactor Model

7.3 VaR with Options

7.4 Black and Scholes Model and Risk Management

7.5 Delta‐Gamma VaR

7.6 VaR of a General Portfolio

7.7 Application

7.8 Conclusion

Chapter 8 Conditional VaR

8.1 Motivation for CVaR and Coherence in Risk Measures

8.2 Notation and VaR

8.3 Definition of CVaR

8.4 Another Way to Derive CVaR with a Return Distribution

8.5 Example with Student's t‐Distribution and Other Examples

8.6 Conclusion: CVaR in Basel Regulation

Chapter 9 Regulation of Bank Risk and Use of VaR

9.1 Basel Accords

9.2 Market Risk Regulation of 1996

9.3 Specific Risks

9.4 Total Required Capital

9.5 Tests

9.6 Comparison between Standard and Internal Methods with Interest Rate Risk

9.6.1 Standard and Internal Methods

9.6.2 Comparison of the Two Methods

9.7 Conclusion

Chapter 10 Optimal Financial Contracts and Incentives under Moral Hazard

10.1 Optimal Financial Contracts and Moral Hazard

10.2 Theoretical Model

10.3 Empirical Application to Air Accident Risk

10.4 Conclusion

Appendix A: Synthesis of Forms of Financial Contracts

Appendix B: Definitions of Variables

Chapter 11 Venture Capital Risk with Optimal Financing Structure

11.1 Some Statistics about Venture Capital

11.2 Role of Venture Capital Firms

11.3 Venture Capital Firms and Added Value

11.4 Role of Convertible Debt

11.5 Information Asymmetry and Venture Capital

11.5.1 Methodology

11.5.2 Financial Vehicle Variables

11.5.3 Control Variables

11.5.4 Results.

11.6 Conclusion

Chapter 12 Bank Credit Risk: Scoring of Individual Risks

12.1 Theoretical Model

12.2 Empirical Analysis

12.3 Credit Line and Loan Default

12.4 Conclusion

Chapter 13 Portfolio Management of Credit Risk

13.1 CreditMetrics

13.2 Review of Chapters 2 and 3 of CreditMetrics

13.2.1 Chapter 2 of CreditMetrics

13.2.2 Chapter 3 of CreditMetrics

13.3 KMV Approach

13.4 Calculation of Correlations

Approximation of Default Correlations

13.5 Conclusion

Chapter 14 Quantification of Banks' Operational Risk

14.1 Context and Presentation of Operational Risk

14.1.1 Basel Accord and Regulation of Operational Risk

14.1.2 Examples

14.2 Measurement of Regulatory Capital

14.2.1 Basic Approach

14.2.2 Standardized Approach

14.2.3 Advanced Measurement Approach (AMA)

14.3 Calculation of Regulatory Capital for Losses of over 1 Million (LDA)

14.3.1 Scaling Model in LDA Models

14.3.2 Adding Business Cycles

14.4 Conclusion

Chapter 15 Liquidity Risk

15.1 Theoretical Modeling of CDSs

15.2 Bond Yield Spread's Default Portion

15.3 Empirical Measurement of Yield Spreads' Default Portion

15.4 Non‐Default Portion of Yield Spreads

15.5 Illiquidity Index

15.6 Illiquidity Premium

15.7 Data

15.7.1 TRACE Database

15.7.2 Markit Database

15.8 Principal Component Analysis of Liquidity Risk

15.9 Empirical Analysis of Credit Cycles

15.10 Regime Detection Model

15.11 Detection of Default and Liquidity Regimes

15.12 Conclusion

Chapter 16 Long‐Term Capital Management

16.1 Brief History of the Fund

16.2 Risk Management, VaR, and Required Capital

16.3 Portfolio Optimization and Leverage Effect

16.4 Conclusion

References.

Chapter 17 Structured Finance and the Financial Crisis of 2007-2009

17.1 Structured Finance

17.2 Poor Risk Management Linked to the Structured Finance Market

17.2.1 Lack of Incentive Contracts in the Presence of Information Asymmetry

17.2.2 Poor Evaluation of Structured Products by Rating Agencies

17.2.3 Poor Pricing of Complex Financial Products

17.2.4 Poor Regulation of Structured Finance

17.3 Conclusion

Appendix: How to Create an AAA CDO Tranche from BBB Loans

Chapter 18 Risk Management and Corporate Governance

18.1 Enron and Corporate Governance

18.2 Financial Crisis and Corporate Governance

18.3 New 2002 Governance Rules

18.4 Risk Management and Governance

18.5 Administrative Competence of Board Members

18.6 New Regulation for Financial Institutions

18.7 Economic Analysis of Governance Effect

18.7.1 Testable Hypothesis

18.7.2 Data and Variables

18.7.3 Model

18.7.4 Empirical Results

18.8 Conclusion

Appendix A: Governance of Canadian Federal Financial Institutions

Appendix B: Details on the Construction of the Governance Indexes

Measuring Governance Standards

The Quality of the Audit Committee

The Quality of the Board

SOX Standards

NYSE Standards

SOX and NYSE Standards

Appendix C: Variables

Chapter 19 Risk Management and Industrial Organization

19.1 Entry, Production, and Hedging

19.2 Commitment to Hedging

19.3 Conclusion

Chapter 20 Real Implications of Corporate Risk Management

20.1 Real Implications of Corporate Risk Management: A Review

20.2 Methodology

20.2.1 Instrumental Variable

20.2.2 Essential Heterogeneity Model

20.3 US Oil Producers

20.3.1 Sample Construction

20.3.2 Descriptive Statistics

20.3.3 Oil Hedging Activity

20.3.4 Univariate Tests.

20.4 Multivariate Results

20.4.1 Firm Value

20.4.2 Firm Riskiness and Firm Accounting Performance

20.5 Conclusion

Appendix: Estimated MTEs

Chapter 21 Exercises

Exercise 1 Portfolio Choice and the Notion of Value at Risk (VaR)

Calculating VaR

Incremental VaR

Reference

Solution for Exercise 1

Conclusion Regarding the Calculations for the VaR

Exercise 2 Backtesting of VaR Models

The Importance of Backtesting

Definitions for the Backtesting

Validation of the Model over a Longer Period

Linear Regression Approach

Exercise 3 Calculation of VaR with Different Distributions and Accuracy of VaR

Calculating VaR using a Lognormal or Truncated Normal Distribution

Estimating the Precision of the VaR Calculated

Solution to Exercise 3

Precision Estimation of the Calculated VaR

Exercise 4 VaR for an Equity Portfolio with Options

Part A Choosing a Portfolio Application of VaR Calculations with Real Data from a Stock Portfolio

Part B Application of the Delta and Delta‐Gamma Methods to Calculate VaR

Risk Exposure of the Portfolio by the Delta Approach

Risk Exposure of the Portfolio by the Delta‐Gamma Approach

Solution to Exercise 4

Exercise 5 CVaR Conditional Value at Risk

Mathematical Expressions of CVaR

Recapitulation of the Three Models: Normal Distribution, Student's t, and Mixture of Two Normal Distributions

Conclusion

Index

EULA.

Notes:

Description based on print version record.

ISBN:

9781119583172

1119583179

9781119583158

1119583152

OCLC:

1099984339