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Corporate Risk Management for Value Creation - A Guide to Real-life Applications
Incisive Media, July 2007, Pages: 200
"At last, we have a book that offers practical tools to unlock the corporate value creation potential from risk management. It is a pleasure to read such a lucid and clever transcript of modern decision theory into insightful ideas that will eventually determine the firms' sake, their success and their survival. This book is a significant contribution on an important topic."
Christian Gollier, Director of the Laboratoire d'Economie des Ressources Naturelles, Université de Toulouse
"Takes a very complex yet critically important topic, and makes it very real and concrete. What is fascinating and of notable interest with this book is its ability to address both the technical and business dimensions of risk management in such a clear and compelling fashion, including the all-important focus on creation of economic value."
Michael Hanley Chief Financial Officer and Executive Vice President, Alcan Inc
"In addition to being very comprehensive the book does a wonderful job of successfully bridging the gap between theory and practice without compromising intellectual rigour. Not only does Professor Leautier offer a concise and consistent view of Risk Capital, he integrates it seamlessly within the field of risk management."
Dr. Vijay Singh, VP risk management, Pennsylvania Power and Light
This book provides you with practical, theoretically sound answers to questions that chief risk officers are typically asking. Written to be easily understood by managers, you will be brought a fresh perspective on risk management. The focus of the book is exclusively on value creation in real-life situations, integrating best-in-class academic theory and practice.
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 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.
Thomas-Olivier Léautier is a professor at University of Toulouse Graduate School of Management and a Research Director at the Institut d’Economie Industrielle. He teaches risk management in the finance and strategy masters programs and conducts research, in particular, risk management.
Formerly, Thomas-Olivier was director of risk measurement and control at Alcan, Inc., a global aluminium and packaging group. There, he set up the risk management function, responsible to identify and quantify risks throughout the company, and develop risk management strategies. He previously held positions at McKinsey and Company where he led the development of the risk management practice for non-financial institutions, and at the World Bank where he was a regulatory economist in the Latin America infrastructure division.
Thomas-Olivier Léautier gained a PhD in economics from M.I.T, in 1997, a MS in Transportation also from M.I.T in 1995, a MS from Ecole Nationale des Ponts et Chaussées in 1995, and a MS in applied Mathematics from Ecole Polytechnique in Paris in 1991.
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
7.1 Advice to current Chief Risk Officers
7.2 The path forward