The Risk Management Process: Business Strategy and Tactics

Praise for The Risk Management Process

"True to its claim, The Risk Management Process is a rigorous yet lucid and broadly accessible account of how the timeless principles of corporate finance apply to the management of risk. Written by an experienced consultant with impeccable academic credentials and incisive analytical thinking, this book is a must–read for the senior manager and corporate treasurer who aspire to integrate risk management with corporate financial management and business strategy."–George M. Constantinides, Leo Melamed Professor of Finance, University of Chicago Graduate School of Business

"Christopher Culp′s The Risk Management Process: Business Strategy and Tactics is a comprehensive treatment of the issues that face risk managers today. His book constructs a bridge to connect the theory and the practice of risk management, and Culp leads readers over that bridge with great care."–Peter Tufano, Sylvan C. Coleman Professor of Financial Management, Harvard Business School

"An unusually simple and lucid analysis of the risk management process. This book will be valuable for anyone trying to manage financial risk."–Ken French, NTU Professor of Finance, Sloan School of Management, MIT

"As opposed to offering us another dry, one–size–fits–all, mathematical approach to measuring or managing one risk or another, this book provides a general management approach to this important facet of managing any business in the twenty–first century, yet doesn′t shy away from sharing with the reader the underlying and necessary quantitative thinking that is required to perform the role of financial risk management. Culp easily switches between a statistical approach to risk measurement and a real–world approach to the particular exposure(s). In addition, it was refreshing to see the amount of time he spent on drawing the distinction between managing risk on Wall Street and managing the same risk within a corporation, which may have very different goals and success benchmarks."–Brent Callinicos, CPA, Treasurer, Microsoft Corporation

"The Risk Management Process is at the same time scholarly and comprehensive, yet readable, realistic, and insightful. Unquestionably, this is the right book at the right time, destined to become the standard reference work in the field."–Steve H. Hanke, Professor of Applied Economics, Johns Hopkins University, and Chairman, The Friedberg Mercantile Group, Inc.

Introduction.

RISK MANAGEMENT AND CORPORATE FINANCE.

The Nature of Risk.

Risk Aversion, Insurance, and Hedging.

The Irrelevance of Corporate Financing and Risk Management Decisions.

Increasing Expected Cash Flows or Reducing the Cost of Capital by Managing Risk.

Reducing Conflicts between Security Holders and Managers by Managing Risk.

Reducing Conflicts amongst Security Holders by Managing Risk.

Controlling and Exploiting Informational Asymmetries by Managing Risk.

Value versus Cash Flow versus Earnings Risk Management.

Total versus Selective Risk Management.

RISK MANAGEMENT AND BUSINESS STRATEGY.

Risk Culture and Risk Management Business Models.

Integrating People, Technology, and Processes through Enterprise–Wide Risk Management.

Identifying Market Risk Exposures and Defining Risk Tolerances.

Spot, Forward, and Forward–Like Exposures.

Identifying Option, Option–Like, and Real Option Exposures.

Measuring and Monitoring Market Risk.

Identifying, Measuring, and Monitoring Credit Risk.

Identifying, Measuring, and Monitoring Liquidity Risk.

Identifying, Measuring, and Monitoring Operational Risk.

Identifying and Managing Legal Risk.

THE TACTICS OF RISK CONTROL.

Ex Ante Capital Allocation.

Ex Post Performance Measurement and Compensation.

Internal Controls.

Tactical Risk Control with Derivatives.

Tactical Risk Control through Actual and Synthetic Asset Divestitures.

Strategic Risk Control with Structured Liabilities.

Insurance and ART.

Notes.

Bibliography.

Index.

CHRISTOPHER L. CULP is Managing Director at CP Risk Management LLC in Chicago and is also Adjunct Associate Professor of Finance at the University of Chicago. A former president of Risk Management Consulting Services, Inc. and senior examiner in the Supervision and Regulation Department of the Federal Reserve Bank of Chicago, Dr. Culp is a managing editor of Derivatives Quarterly and Senior Fellow in Financial Regulation with the Competitive Enterprise Institute in Washington, DC. Dr. Culp holds a PhD in finance from the Graduate School of Business of the University of Chicago and a BA in economics from Johns Hopkins University.