Strategic Risk Taking A Framework for Risk Management

ISBN-10: 0137043775

ISBN-13: 9780137043774

Edition: 2008

Authors: Aswath Damodaran

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Book details

List price: $70.95
Copyright year: 2008
Publisher: Wharton School Publishing
Publication date: 1/19/2010
Binding: Paperback
Pages: 408
Size: 7.50" wide x 9.00" long x 1.00" tall
Weight: 1.496

A Roadmap for Understanding Risk
Chapters 14 The Economists' View of Risk Aversion and the Behavioral Response
What Is Risk?
A Very Short History of Risk
Defining Risk
Dealing with Risk
Risk and Reward
Risk and Innovation
Risk Management
The Conventional View and Its Limitations
A More Expansive View of Risk Management
Why Do We Care About Risk?
The Duality of Risk
I Am Rich, But Am I Happy? Utility and Wealth
The St. Petersburg Paradox and Expected Utility: the Bernoulli Contribution
Mathematics Meets Economics: Von Neumann and Morgenstern
The Gambling Exception?
Small Versus Large Gambles
Measuring Risk Aversion
Certainty Equivalents
Risk Aversion Coefficients
Viii ContentsOther Views on Risk Aversion
Prospect Theory
Consequences of Views on Risk
Investment Choices
Corporate Finance
What Do We Think About Risk?
General Principles
Evidence on Risk Aversion
Experimental Studies
Survey Measures
Pricing of Risky Assets
Evidence from Racetracks, Gambling, and Game Shows
Propositions about Risk Aversion
How Do We Measure Risk?
Fate and Divine Providence
Estimating Probabilities: the First Step to Quantifying Risk
Sampling, the Normal Distributions, and Updating
The Use of Data: Life Tables and Estimates
The Insurance View of Risk
Financial Assets and the Advent of Statistical Risk Measures
The Markowitz Revolution
Efficient Portfolios
The Mean-Variance Framework
Implications for Risk Assessment
Introducing the Riskless Asset the Capital Asset Pricing Model
(CAPM) Arrives
Mean Variance Challenged
Fat Tails and Power-Law distributions
Asymmetric Distributions
Jump Process Models
Data Power: Arbitrage Pricing and Multifactor Models
Arbitrage Pricing Model
Multifactor and Proxy Models
The Evolution of Risk Measures
Chapters 5
Risk Assessment: Tools and Techniques
Risk-Adjusted Value
Discounted Cash Flow Approaches
The DCF Value of an Asset
Risk-Adjusted Discount Rates
Certainty-Equivalent Cash Flows
Hybrid Models
DCF Risk Adjustment: Pluses and Minuses
Post-Valuation Risk Adjustment
Rationale for Post-Valuation Adjustments
Downside Risks
Other Discounts
Upside Risks
The Dangers of Post-Valuation Adjustments
Relative Valuation Approaches
Basis for Approach
Risk Adjustment
DCF Versus Relative Valuation
The Practice of Risk Adjustment
Fixed Discount
Firm-Specific Discount
Determinants of Illiquidity Discounts
Estimating Firm-Specific Illiquidity Discount
Synthetic Bid-Ask Spread
Option-Based Discount
Probabilistic Approaches: Scenario Analysis, Decision
Trees, and Simulations
Scenario Analysis
Best Case/Worst Case
Multiple Scenario Analysis
Decision Trees
Steps in Decision Tree Analysis
An Example of a Decision Tree
Use in Decision Making
Risk-Adjusted Value and Decision Trees
Steps in Simulation
An Example of a Simulation
Use in Decision Making
Simulations with Constraints
Risk-Adjusted Value and Simulations
An Overall Assessment of Probabilistic Risk Assessment Approaches
Comparing the Approaches
Complement or Replacement for Risk Adjusted Value
In Practice
Fitting the Distribution
Is the Data Discrete or Continuous?
How Symmetric Is the Data?
Are There Upper or Lower Limits on Data Values?
How Likely Are You to See Extreme Values of Data, Relative to the Middle Values?
Tests for Fit
Tests of Normality
Value at Risk (VaR)
What Is VaR?
A Short History of VaR
Measuring VaR
Variance-Covariance Method
Historical Simulation
Monte Carlo Simulation
Comparing Approaches
Limitations of VaR
VaR Can Be Wrong
Narrow Focus
Suboptimal Decisions
Extensions of VaR
VaR as a Risk Assessment Tool
Real Options
The Essence of Real Options
Real Options, Risk-Adjusted Value, and Probabilistic Assessments
Real Option Examples
The Option to Delay an Investment
The Option to Expand
The Option to Abandon an Investment
Caveats on Real Options
Real Options in a Risk Management Framework
Option Payoffs
Determinants of Option Value
Option Pricing Models
The Binomial Model
The Black-Scholes Model
Chapters 9���12
Risk Management: the Big Picture
Risk Management: the Big Picture
Risk and Value: the Conventional View
Discounted Cash Flow Valuation
Relative Valuation Models
Expanding the Analysis of Risk
Discounted Cash Flow Valuation
Relative Valuation
Option Pricing Models
A Final Assessment of Risk Management
When Does Risk Hedging Pay Off?
When Does Risk Management Pay Off?
Risk Hedging Versus Risk Management
Developing a Risk Management Strategy
Risk Management: Profiling and Hedging
Risk Profile
Step 1: List the Risks
Step 2: Categorize the Risks
Step 3: Measure Exposure to Each Risk
Step 4: Analyze the Risks
To Hedge or Not to Hedge?
The Costs of Hedging
The Benefits of Hedging
The Prevalence of Hedging
Does Hedging Increase Value?
Alternative Techniques for Hedging Risk
Investment Choices
Financing Choices
Picking the Right Hedging Tool
Strategic Risk Management
Why Exploit Risk?
Value and Risk Taking
Evidence on Risk Taking and Value
How Do You Exploit Risk?
The Information Advantage
The Speed Advantage
The Experience/Knowledge Advantage
The Resource Advantage
Building the Risk-Taking Organization
Corporate Governance
Reward/Punishment Mechanisms
Organization Size, Structure, and Culture
Risk Management: First Principles
Risk Is Everywhere
Risk Is Threat and Opportunity
We Are Ambivalent About Risks and Not Always Rational About the Way We Assess or Deal with Risk
Not All Risk Is Created Equal
Risk Can Be Measured
Good Risk Measurement/Assessment Should Lead to Better Decisions
The Key to Good Risk Management Is Deciding Which Risks to Avoid, Which Ones to Pass Through, and Which to Exploit
The Payoff to Better Risk Management Is Higher Value
Risk Management Is Part of Everyone's Job
Successful Risk-Taking Organizations Do Not Get There by Accident
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