The article clarifies the most essential methods for risk management.
This includes especially the methods for identification, quantification and simulation based risk aggregation (e.g. monte carlo simulation). It is pointed up that an appropriate quantification of all relevant risks and a risk aggregation by the monte carlo simulation are both crucial for an efficient risk management.
Also an impression of the basics for the organization of risk management systems is given and the main aspects of risk coping and risk control are explained.
Overall, a modern, „decision-oriented“ risk management is portrayed which is able to predict changes due to decisions in the risk-return profile of the company already during the process of preparing those decisions (e.g. in terms of investment or acquisitions).
On the whole, risk management supports the central company task of using sound judgement when weighing expected income and potential risks with regards important decisions (“evaluation”). It is crucial that risk analysis is conducted when preparing to take company decisions, and it shows how the level of potential risk to the company would change if one course of action were chosen over another (“what-would-happenif analysis”).
READ FULL VERSION: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3260534
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