Jump to ContentJump to Main Navigation
Corporate Decision-Making with Macroeconomic UncertaintyPerformance and Risk Management$
Users without a subscription are not able to see the full content.

Lars Oxelheim and Clas Wihlborg

Print publication date: 2008

Print ISBN-13: 9780195335743

Published to Oxford Scholarship Online: May 2009

DOI: 10.1093/acprof:oso/9780195335743.001.0001

Show Summary Details
Page of

PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2020. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 01 October 2020

Strategies for Risk and Exposure Management

Strategies for Risk and Exposure Management

(p.155) Chapter 8 Strategies for Risk and Exposure Management
Corporate Decision-Making with Macroeconomic Uncertainty

Lars Oxelheim (Contributor Webpage)

Clas Wihlborg

Oxford University Press

Given the firm's objective with respect to shareholders and other stakeholders, it is naturally desirable that a risk management strategy is consistent with the objective. A firm's objective has several dimensions. It can be defined in terms of a target variable such as profit, economic value, shareholders' wealth, or book value. In addition, the time horizon must be made explicit. Risk attitude with respect to the target variable is a third dimension. Determination of a risk management strategy requires also that management takes a position with respect to financial market efficiency, the existence of risk premiums, purchasing power parity, and costs of adjusting operations. These costs determine the role of financial risk management relative to the adjustment of operations and pricing. Flexibility of operations is a real option. Four types of strategies for financial risk management are discussed in this chapter based on the management's risk attitude and perception of profit opportunities in financial markets; laissez-faire (do nothing), aggressive, minimize variance, and selective hedging. These strategies can be chosen for any target variable and time horizon. Choosing a strategy is, to a large extent, an information problem. Information requirements for selective hedging, in particular, can become so overwhelming that the range of feasible strategies does not encompass it. In this situation management is faced with the need to determine what risk management objectives can be achieved with the available information.

Keywords:   risk management strategy, financial risk management, information requirements, target variable, risk attitude, laissez-faire, aggressive, minimize variance, selective hedging, expectations hypothesis

Oxford Scholarship Online requires a subscription or purchase to access the full text of books within the service. Public users can however freely search the site and view the abstracts and keywords for each book and chapter.

Please, subscribe or login to access full text content.

If you think you should have access to this title, please contact your librarian.

To troubleshoot, please check our FAQs , and if you can't find the answer there, please contact us .