Measuring value creation by comparing the RAROC of an exposure (the return on risk capital) with a single institution-wide hurdle rate is inconsistent with the standard theory of financial valuation. We use asset pricing theory to determine the appropriate hurdle rate for such a RAROC...

Die Allokation des ökonomischen Kapitals stellt sowohl in der Theorie als auch in der Praxis ein zentrales Problem der Banksteuerung dar. Insbesondere Handelsentscheidungen und die Organisation von Handelsabteilungen in Kreditinstituten sind ein weit gehend unerforschtes Feld, das aber in der...

This paper examines the choice of tools for managing a firm’s operational risks: cash reserves, insurance contracts, and financial assets under an optimal financing contract that solves moral hazard between insiders and outside investors. Risk management is valuable as it reduces the costs of...

This paper examines the choice of tools for managing a firm’s operational risks: cash reserves, insurance contracts, and financial assets under an optimal financing contract that solves moral hazard between insiders and outside investors. Risk management is valuable as it reduces the costs of...

Capital allocation is an instrument for managing an insurance company. This is linked with three important fields of an insurance company: pricing, risk management and performance management. It is a tool for strategic management so as to decide to further invest in or discontinue a business...

We derive the optimal corporate pension portfolio policy in a consolidated setting in the presence of PBGC insurance. The paper's result formalizes the forces of risk shifting and risk management that shape the form of the corporate pension portfolio. As in Rauh (2009), the risk-shifting and...

The high cost of capital for firms conducting medical research and development (R&D) has been partly attributed to the government risk facing investors in medical innovation. This risk slows down medical innovation because investors must be compensated for it. We propose new and simple financial...

The aim of this paper is to study optimal risk- and value-based management decisions regarding a non-life insurer's investment strategy by maximizing shareholder value based on preference functions, while simultaneously controlling for the ruin probability. We thereby extend previous work by...

We study how risk management through hedging impacts firms and competition among firms in the life insurance industry - an industry with over 7 Trillion in assets and over 1,000 private and public firms. We show that firms that are likely to face costly external finance increase hedging after...

We address the paradox that financial innovations aimed at risk-sharing appear to have made the world riskier. Financial innovations facilitate hedging idiosyncratic risks among agents; however, aggregate risks can be hedged only with liquid assets. When risk-sharing is primitive, agents...