The Evolution of Risk Management Products

Rawls, S. Waite; Smithson, Charles W.

doi:10.1111/j.1745-6622.1989.tb00171.x

Cited by 5 publications

(2 citation statements)

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“…This is similar to a short position in an instrument that financial market practitioners usually call a cancellable forward or Boston option (Kat, 1994;Rawls & Smithson, 1989)…”

Section: Analyzing the Contractual Termsmentioning

confidence: 81%

Valuation of Contractual Assets Using Statistical Simulation

Vlachý¹

2016

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153This paper develops a dynamic option-based model for the valuation of rental and other similarly structured lease contracts under the conditions of uncertainty that is then solved by statistical simulation (Monte Carlo). The motivation, research background and methodology of the paper follow up on a previously published general firm-theoretical approach by the author, who takes an interdisciplinary approach to apply the model in this particular context. It is shown that due to the path dependency of the problem, Monte Carlo is an appropriate and practical tool for analyzing embedded options, incident in most rental and lease relationships, and can be used as a major determinant of their value. In addition to its basic valuation function, exploitable for business acquisition or lease contracting purposes, this Monte Carlo model is very well disposed for various microeconomic analyses. Accordingly, we demonstrate the particular impacts and sensitivities of contractual party-specific, as well as environmental, factors including parties' transaction costs, information asymmetry and enforceability of legal claims. IntroductionValue-based methods for assessing tangible investments are familiar tools for most decision-makers, constituting a fundamental part of management education and are extensively used for key components of the strategic management process, such as capital budgeting. The essential principles of the discounted cash-flow model have been in the public domain and in regular use by practitioners for at least the last one hundred years (Fischer, 1907;Rubinstein, 2006;Williams, 1938).More recently, many researchers have expressed that, besides tangible assets, the value of any business may be strongly determined by intangibles (Blair & Wallman, 2001;Daum, 2001;Lev, 2001;Saaty, 2009) These generally constitute various rights, opportunities and obligations that can substantially enhance and/or diminish the value of a company when compared to the balance of its assets and liabilities, and they may include diverse items, ranging from licenses and brands to specific business skills and market share (Corrado, Hulten, & Sichel, 2005;Kogut and Zander, 1992;Ortiz, 2006;Wang, Wang, & Liang, 2014

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“…This is similar to a short position in an instrument that financial market practitioners usually call a cancellable forward or Boston option (Kat, 1994;Rawls & Smithson, 1989)…”

Section: Analyzing the Contractual Termsmentioning

confidence: 81%

Valuation of Contractual Assets Using Statistical Simulation

Vlachý¹

2016

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“…More specifically, they cite the increased price volatility of exchange rates, interest rates and commodity prices as the factor responsible for the evolution of risk management products. This view is supported by a number of other authors as well, e.g., see, Miller (1992), Rawls and Smithson (1989). However, it is not clear that increased price volatility is the sole factor responsible for developments in the market for risk management products.…”

Section: The Evolution Of Risk Management Productsmentioning

confidence: 88%

An overview of the market for risk management products

2000

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Outlines the development of risk management products, reviews relevant research and identifies reasons for their rapid growth. Reports a study of US public issues of securities from 1962 to 1998 which examines the introduction and longevity of various types; and analyses the issuers and leading underwriters for each and the countries involved. Confirms the important role of banks and financial institutions in the market and shows that Europe is the leading area for the issue of currency securities and demand for both these and interest rate securities. Adds that Japanese underwriters lead in currency securities and US underwriters in interest rate securities. Provides a glossary of technical terms.

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Konstruktion eines Untersuchungsrahmens zur Abgrenzung des Risiko-Controlling

Kimmig¹

2001

Risiko-Controlling in Der Unternehmung

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The Evolution of Risk Management Products

Cited by 5 publications

References 1 publication

Valuation of Contractual Assets Using Statistical Simulation

Valuation of Contractual Assets Using Statistical Simulation

An overview of the market for risk management products

Konstruktion eines Untersuchungsrahmens zur Abgrenzung des Risiko-Controlling

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