Exhibit 4.1: Managing Financial risk Example 2 But what if the price of the stock declines, say to $33 per share? Without the put option, the stock owner has lost $10 $43-$33 per share on paper With the put option, he has the right to sell 100 shares at $40 per share. Thus, the option is in the money" by $7 per share($40-$33) ignoring the option premium
Exhibit 4.1: Managing Financial Risk – Example 2 • But what if the price of the stock declines, say to $33 per share? – Without the put option, the stock owner has lost $10 ($43–$33) per share on paper. – With the put option, he has the right to sell 100 shares at $40 per share. Thus, the option is “in the money” by $7 per share ($40–$33), ignoring the option premium
The Changing Scope of Risk Management An integrated risk management program is a risk treatment technique that combines coverage for pure and speculative risks in the same contract a double-trigger option is a provision that provides for payment only if two specified losses occur Some organizations have created a chief risk Officer(CRO) position The chief risk officer is responsible for the treatment of pure and speculative risks faced by the organization 4-12
4-12 The Changing Scope of Risk Management • An integrated risk management program is a risk treatment technique that combines coverage for pure and speculative risks in the same contract • A double-trigger option is a provision that provides for payment only if two specified losses occur • Some organizations have created a Chief Risk Officer (CRO) position – The chief risk officer is responsible for the treatment of pure and speculative risks faced by the organization
The Changing Scope of Risk Corporate Value of ENTERPRISE Management RISK MANAGEMENT e Next Step in siness Management SIN BELL Enterprise Risk Management (ERM) is a comprehensive risk management program that addresses the organization s pure speculative strategic, and operational rIsKs As long as risks are not positively correlated, the combination of these risks in a single program reduces overall risk Nearly half of all US firms have adopted some type of ERM program Barriers to the implementation of ERM include organizational, culture and turf battles Chartered Enterprise Risk Analyst(CERA) designation SOA new initiative Your CERA expert: Prof Chan, Wai Sum 4-13
4-13 The Changing Scope of Risk Management • Enterprise Risk Management (ERM) is a comprehensive risk management program that addresses the organization’s pure, speculative, strategic, and operational risks • As long as risks are not positively correlated, the combination of these risks in a single program reduces overall risk • Nearly half of all US firms have adopted some type of ERM program • Barriers to the implementation of ERM include organizational, culture and turf battles • Chartered Enterprise Risk Analyst (CERA) designation: SOA new initiative • Your CERA expert: Prof. Chan, Wai Sum
ERM: West Coast Athletic Apparel he emergency meeting of west Coast Athletic Apparel's leadership team started ar 8:00 AM on a Monday morning."Whot the heck happened?'President Brian Harper asked his executive officers Simply pur, we got hacked,'replied Bridger Harris, the chief technology oficer " How bad is it, and how did it happen?'asked Harper Harris replied,"Friday night around 7:00 PM, the firewolf protecting online customer data was somehow disabled. So data for all credit card orders over the weekend-a total of 4/5 order were compromised Customer dota from orders before Friday night are safe.". What's our best course ofocrion.Harper asked. "Let me answer thar, said Risk Manager Kendall Smith, We shur down the sales website immediately. We ve already e-mailed all the affected customers. We re also calling each customer. Ar //:00 AM we have a press conference scheduled. You fI store rhe facts, apologize to the affected parties, assure our 'old 'customers and suppliers thar rheir information is safe, and assure those impacted that we re going to make it righr to them. We l/ assist them as best we can, and we ll hove identity theft experts available fo help them. "Sounds like a great plan."'said Harper" 'd you come up with a pian so Yuck/y?re "We didn t, "replied Smith. " When we implemented an enterprise risk management program 3 years ago, hacking and reputational risk were two of the important risks we considered. So we were prepared for what just happened. We want to minimize the harm to our customers and shareholders, and maintain good relations with our suppliers. An enterprise risk management program allows us to do just that. This chapter builds on the discussion of risk management in Chapter 3. We begin with a discussion offinancial risk management and enterprise risk management. Next, we discuss some topics related to enterprise risk management, including insurance market dynamies, loss forecasting, financial analysis in risk management decision making, and the application of several risk management tools. A problem ser based on some ofthe quantitative material presented in this chapter is available or the companion website: pearsonglobaledirions. com/Reido
ERM: West Coast Athletic Apparel 4-14
Risks Face by West Coast Athletic Apparel Pacific Rim Earthquake Competition (Supply Chan) X X Cyber Attack calfornia X Earthquake X Reputation Intellectual Product X Mean Property Liability X Regulatory Compliance Directors X Currency Cif cors Workers Comp Exchange LOW X Emoloyee Theft Shoplifting X L Medium Frequency 4-15
Risks Face by West Coast Athletic Apparel 4-15