Exposure-Based Cash-Flow-at-Risk: An Alternative to VaR for Industrial Companies

Niclas Andrén (), Håkan Jankensgård and Lars Oxelheim

Journal of Applied Corporate Finance, 2005, vol. 17, issue 3, pages 76-86

Abstract: Cash-Flow-at-Risk (CFaR) is the cash flow equivalent of Value-at-Risk (VaR), a measure widely used as the basis for risk management in financial institutions. Whereas VaR-based systems specify the maximum amount of total value a firm is expected to lose under most foreseeable conditions (for example, with a 99% confidence level), CFaR-based systems determine the maximum shortfall of cash the firm is willing to tolerate. CFaR is gaining in popularity among industrial companies for much the same reasons VaR has succeeded with financial firms: it sums up all the company's risk exposures in a single number that can be used to guide corporate risk management decisions. 2005 Morgan Stanley.

Date: 2005

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