Download e-book for kindle: Alternative Risk Transfer: Integrated Risk Management by Erik Banks

By Erik Banks

ISBN-10: 0470857455

ISBN-13: 9780470857458

The booklet appears to be like effortless to learn, yet nonetheless relatively accomplished. the hot traits of paintings ideas are reliable captured and defined in a good understandible demeanour. solid booklet for everybody who desires to comprehend major gains of artwork marketplace with out getting himself misplaced in small mathematical information

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Extra resources for Alternative Risk Transfer: Integrated Risk Management through Insurance, Reinsurance, and the Capital Markets

Example text

To begin, we assume that maximizing enterprise value means maximizing the present value of expected NCFs. Thus, if a firm has a 90% probability of earning NCFs of $100 (outcome 1) and 10% probability of earning $70 in one year (outcome 2), the expected NCF one year from now is $97. 38; this is the enterprise value today, before the firm undertakes any risk management activities. 38), but the actual value will depend on the occurrence of outcomes 1 or 2. 23%. Let us now inspect aspects of this example.

In fact, these can allow coverage of risks that might not normally be insurable through standard mechanisms, and they may be a cost-effective way of protecting business. However, coverage can be ambiguous and the level of credit risk the company assumes necessarily rises. While these are certainly valid risk transfer mechanisms, we shall not discuss them in detail in this book. 4 OUTLINE OF THE BOOK With this brief overview of basic risk management issues, we are now prepared to consider how and why the ART market exists and the specific products, vehicles, and solutions that are available to those who actively manage their risks.

Correlation between two random variables, formally defined as the covariance of the two variables divided by the standard deviation of each one,5 is measured on a scale of +1 to −1, where +1 implies perfect positive correlation and −1 perfect negative correlation; a correlation of 0 implies no relationship, indicating that the variables are independent. 7 in the other. Risk pooling reduces risks if expected losses are uncorrelated; when this occurs there is no change in the expected loss (or cost) but there is a reduction in the standard deviation.

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Alternative Risk Transfer: Integrated Risk Management through Insurance, Reinsurance, and the Capital Markets by Erik Banks

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