Enterprise Risk Management

Introduction

The recent global financial crisis and corporate risk failures created the need for more efficient management of risk and questioned the traditional risk management practices. Moreover, the increases in the frequency and severity of disasters due to climate change become an impending threat to financial stability. One approach that has been gaining popularity is the Enterprise Risk Management (ERM) that enables companies to establish businesses that are more sustainable against external and internal risks as well as changes to the economic environment. ERM is based on the idea that risk management is a strategic and organization-wide issue and that careful identification and assessment of all the important risks, as well as a portfolio approach to risk, are vital for protecting and maximizing value.

In this course, we will combine the analytical-theoretical approach to corporate value maximization with the practical knowledge and experience gained from risk failures and successes, on which the ERM approach is based, and quantitative risk analytics. The course structure reflects the fact that risk management is viewed as both an art and a science.

A third and important component of the course is derivatives, that provide two important elements for utilizing ERM: (i) a significant set of tools for managing financial and other risks and (ii) the pricing of contingent claims which provides a way to perform a cost-benefit analysis for maximizing organizational value.

Course content

The course will cover a large spectrum of topics that are necessary for the design and implementation of an analytical framework of ERM:

• History, framework and implementation of ERM
• Lessons from risk failures and risk management successes
• Risk analytics and risk management strategies
• Overview of derivatives markets
• Pricing of and hedging with derivatives
• Valuing non-linear contingent cash-flows
• Managing risk with and without financial friction
• Risk capital and risk-adjusted performance