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Simulation of balance sheet risk
As I wrote in my article about balance sheet risk, a company with covenants in its loan agreements may have to hedge balance sheet risk even though it is not optimal from a market risk perspective. But how can the company know which covenant to hedge? Often a company will have more than one covenant,…
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Hedging the balance sheet
A hedging strategy should be oriented towards hedging the company’s market value to build shareholder value. Normally hedging of balance sheet items is not a good argument for hedging from the shareholders point of view, since a company’s balance sheet not necessarily reflect its market value. In some cases, however, it may be argued that…
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Risk tolerance
One of the most important concepts within risk management is risk tolerance. Without clearly defining risk tolerance it is virtually impossible to implement good risk management, since we do not know what to measure risk against. Defining risk tolerance means to define how much risk the business can live with. Risk tolerance is vitally important…
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The risk of planes crashing due to volcanic ash
When the Icelandic volcano Eyafjallajøkul had a large eruption in 2010 it lead to closed airspace all over Europe, with corresponding big losses for airlines. In addition it led to significant problems for passengers who were stuck at various airports without getting home. In Norway we got a new word: “Ash stuck” ((Askefast)) became a…