Mastering Financial Modelling in Microsoft Excel 3rd edn, 3rd Edition

22

Risk management

Introduction

Forward rate agreements

Swaps

Foreign exchange

Futures

Options

Black–Scholes

Summary

INTRODUCTION

Risk management is a wide-ranging subject which encompasses adverse events affecting the organisation. Definitions of risk include the combination of the probability of an event and its consequences or the divergence of actual from expected results. In corporate finance you normally wish to model the effect of downside risk rather than upside risk which could be viewed as a bonus. You wish to understand the effect of changes to the base case and their effect on the model output.

While insurance can be used to defer and manage risks such as fire or theft, there are many events for which insurance cannot provide ...