Combining insurance, contingent debt, and self-retention in an optimal corporate risk financing strategy

Eugene Gurenko and Olivier Mahul

No 3167, Policy Research Working Paper Series from The World Bank

Abstract: The authors provide a conceptual framework for designing a comprehensive risk financing strategy for a firm, using an optimal combination of three instruments: self-retention, contingent debt, and insurance. Using an original conceptual model, the risk management decisions of the firm are first decomposed into two sets-choosing attachment points for each layer of financing used in the overall risk financing structure, and, then determining optimal risk allocation arrangements within each layer of risk. This model allows the authors to show how these optimal risk financing arrangements are driven by the costs of risk management instruments, the risk characteristics, and the firm's borrowing constraints. Finally, the authors provide an original perspective to think about optimal ex ante risk management strategies, based on a combination of insurance, savings, and credit at the microeconomic or macroeconomic levels.

Keywords: Insurance&Risk Mitigation; Banks&Banking Reform; Financial Intermediation; Payment Systems&Infrastructure; Environmental Economics&Policies; Insurance&Risk Mitigation; Banks&Banking Reform; Financial Intermediation; Environmental Economics&Policies; Insurance Law (search for similar items in EconPapers)
Date: 2003-11-30
New Economics Papers: this item is included in nep-fin and nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://www-wds.worldbank.org/external/default/WDSC ... ered/PDF/WPS3167.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wbk:wbrwps:3167

Access Statistics for this paper

More papers in Policy Research Working Paper Series from The World Bank 1818 H Street, N.W., Washington, DC 20433. Contact information at EDIRC.
Bibliographic data for series maintained by Roula I. Yazigi ().