Centro de Documentacion de Fundación MAPFRE - Enterprise risk management through strategic allocation of capital

MAP20120019287

Enterprise risk management through strategic allocation of capital / Jing Ai...[et..al]

Sumario: This article presents a conceptual framework for operationalizing strategic enterprise risk management (ERM) in a general firm. We employ a risk-constrained optimization approach to study the capital allocation decisions under ERM. Given the decision maker's risk appetite, the problem of holistically managing enterprise-wide hazard, financial, operational, and real project risks is treated by maximizing the expected total return on capital, while trading off risks simultaneously in Value-at-Rlsk type of constraints. This approach explicitly quantifies the concepts of risk appetite and risk prioritization in light of the firm's default and financial distress avoidance reflected in its target credit rating. Our framework also allows the firm to considera multiperiod planning horizon so that changing business environments can be accounted for. We illustrate the implementation of the framework through a numerical example. Asan initial conceptual advancement, our formulation is capable of facilitating more general ERM modeling within a consistent strategic framework, where idiosyncratic variations of firms and different modeling assumptions can be accommodated. Managerial implications are also discussed.

En: The Journal of risk and insurance. - Nueva York : The American Risk and Insurance Association, 1964- = ISSN 0022-4367. - 01/03/2012 Tomo 79 Número 1 - 2012 , p. 29-56

1. Gerencia de riesgos . 2. Estrategia organizativa . 3. ERM . 4. Riesgo financiero . 5. Capitales . I. Ai, Jing . II. Golden, Linda L. .