Description: Much of the push for ERM has come from regulators and rating agencies, but it is being applied in internal company decision-making as well. This paper reviews the progress made and the needs still outstanding in two key areas of application: optimal capital level for an insurer and risk-adjusted profitability of business units. The basic conclusion is that progress has been made in these areas, but more is needed. Building models is not emphasized—it will be assumed that a state-of-the art model is available. The emphasis is on using such models in decision-making.

Description: In this paper we discuss the link between the price of a contingent claim and its replicating strategies. We compute the replicating strategies for some contingent claims when the price of stocks are modeled using either the Wiener process or the Poisson process. These replicating strategies are essential knowledge if one wishes to implement a dynamic trading strategy.

Description: This note develops the optimality of the put option as a hedging strategy. For an investor who owns a stock, he can buy a put option to hedge against the downside risk of the stock price. In this short note, we ask two questions with the hedge strategy of the put option. First, whether the investor is better off with the hedging strategy? Second, if the investor is better off with the hedging strategy, whether it is the optimal hedging plan? Our result shows that in a risk averse world an investor will maximize his utility with buying the put option as a hedge strategy.

Description: This paper examines the problem of hedging foreign exchange risk across multiple countries using currency options. The profit target requirement is formulated as a stochastic constraint in the context of a binomial lattice. Models are presented for European options. In a numerical example, five currency options are selected, allowing for long or short positions, depending on the target value.

Description: While some people proclaim the imminent triumph of renewable energy, this article argues that fossil fuels will continue to be part of the energy mix.

Description: Adaptive Risk Management harnesses social intelligence to identify emerging risks. We have entered an age of disruption where exponential technologies are transforming every industry. The ability to pivot in a rapidly evolving ecosystem is essential. Centralized “predict and control” paradigms will increasingly fail as complex interactions drive phase transitions. Successful organizations will harness social intelligence to “sense and respond” to giant waves of change. Maps amplify intelligence to help us navigate challenging terrain. Maps play a central role in all command centres, enabling rapid risk identification with a shared visual language. Interactive financial network maps allow analysts to explore and diagnose systemic fragilities, and mitigate critical vulnerabilities. Dynamic financial maps can also build visual intuition to detect escalating risk patterns. After observing early warning signals, analysts can apply network analytics to estimate likely second order effects. This allows organizations to proactively manage emerging risk before tipping points are crossed.

Description: To be financially "well" is unique to an individual. Following a hierarchy of needs is key, along with saving more than the talking heads tell you to.

Description: French language version of Risk Management, August 2014 newsletter.

Description: Many top-performing businesses aren’t just risk aware, but rather risk intelligent. Such a posture helps prepare companies for a major event and can demonstrate to a regulator or auditor that an appropriately strong control framework is in place. Better still, companies gain real strategic value from a “risk adjusted” understanding not only of their threats and vulnerabilities, but also the upside opportunities associated with various risks. It starts with having both qualitative and quantitative information to identify, assess and manage risks. Strategic risk management, at its core, is about creating value by increasing transparency and accountability, and quality of information. More than a mere compliance exercise, effective risk management enables more informed strategic decision making, increased accountability and transparency, a greater likelihood of organizational success, and – ultimately – competitive advantage, as borne out by many studies that correlate risk management and financial results.

Description: Social Security provides financial protection by annuitizing retirement. This is not enough for many. My idea creates an additional annuity via Social Security.