The Method Of Financial Risk Management

by

ACKNOWLEDGEMENT

I would take this opportunity to thank my research supervisor, family and friends for their support and guidance without which this research would not have been possible.

DECLARATION

I [type your full first names and surname here], declare that the contents of this dissertation/thesis represent my own unaided work, and that the dissertation/thesis has not previously been submitted for academic examination towards any qualification. Furthermore, it represents my own opinions and not necessarily those of the University.

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ABSTRACT

In this study we try to explore the concept of risk management in a holistic context. The main focus of the research is on financial risk management and its relation with the business sector. The research also analyzes many aspects of risk management and tries to gauge its effect on business decisions. Finally the research describes various factors which are responsible for risk management and tries to describe the overall effect of the method of financial risk management on the business.

Table of Contents

ACKNOWLEDGEMENTII

DECLARATIONIII

ABSTRACTIV

CHAPTER 1: INTRODUCTION1

Background of the study1

Research Aims and Objectives1

Ethical Considerations1

CHAPTER 2: LITERATURE REVIEW3

Background of Financial Management3

Risk Management6

Commodity Risk Management8

Capital Management and its main components9

Capital Budgeting13

Study Motivation and Original Contribution14

Deterministic vs. Stochastic Capital Structure15

Deterministic Capital Structure Optimization16

CHAPTER 3: METHODOLOGY17

Introduction17

Philosophical Framework or Paradigm18

Rationale for a Qualitative Study19

CHAPTER 4: DISCUSSION21

Methods of Financial Risk Management21

CHAPTER 5: MODELS OF CALCULATING RISK MANAGEMENT27

Risk Measurement27

Extreme Value Theory Approach:31

Parametric Approach:34

GST and Stable Distribution35

Generalized Skewed t Distribution36

Stable Distribution38

Copula Function43

CHAPTER 06: CONCLUSION47

Controlling Risk Management47

The Role of Good Management48

Staff as an Area of Risk49

Risks from “Others Who Receive Services”49

Protecting Assets and Resources50

Financing Risk50

Evaluation51

REFERENCES52

CHAPTER 1: INTRODUCTION

Background of the study

Risk management is a core activity by financial institutions. There are different types of finan­cial risks, e.g. market risk, credit risk, operational risk, modelling risk, liquidity risk, business risk, etc. Managing these risks to minimize potential losses is essential to ensure viability and good reputations for financial institutions. Therefore, it is necessary to have an accurate model and a proper measurement that describes the risks. Infrastructure project expenditures in the world economy have been growing substantially in the last two decades (Koven 2003, pp.1). Public owners of infrastructure projects, who have originally shouldered the burden of infrastructure finance through a variety of public-financing structures, must face the daunting challenge of balancing the huge spending demand with a constrained budget. Therefore, governments around the world are looking for economically efficient and creative alternative ways to deliver infrastructures.

Research Aims and Objectives

The aims and objectives of the research are as follows:

To find the methods of financial risk management

To assess the importance of financial risk management in business

Ethical Considerations

In addition to obtaining a signed consent form prior to conducting the interview, the researcher would take steps to make sure that “genuine informed consent” (Suzuki et al., 2007) has been granted by the interviewee. To accomplish this objective, information regarding the nature of the study would be presented prior to conducting the interview. Additionally, the interviewee would be informed that a debriefing session would be held at the end of the interview to allow the participant ...