Corporate Risk Management

This chapter discusses the key processes in risk management: risk identification, risk assessment, risk mitigation and risk transferring. The process of risk management includes determining which risks to accept, which to neutralize, and which to transfer. The traditional process of risk management focuses on managing the risks of only parts of the business, ignoring the implications for the value of the firm. The process should allow the management to align the risk appetite and strategies across the firm, improve the quality of the firm's risk-response decisions, identify and manage the risk across the firm. The enforcement of an enterprise risk management (ERM) policy requires that the amount of risk that a firm is willing to accept be specified. Corporations through their board set the boundaries as to how much risk the firm is prepared to accept. Futures, forwards, options, swaps, caps, floors and credit derivatives are the capital market instruments that can be used for risk management transfer.