Exposure-based Cash-Flow-at-Risk under Macroeconomic Uncertainty
Niclas Andrén (),
Håkan Jankensgård and
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Håkan Jankensgård: The Research Institute of Industrial Economics, Postal: Lund University, P.O. Box 7080, SE-220 07 Lund, Sweden
No 635, Working Paper Series from Research Institute of Industrial Economics
In this paper we derive an exposure-based measure of Cash-Flow-at-Risk (CFaR). Existing approaches to calculating CFaR either only focus on cash flow conditional on market changes or neglect market-risk exposures entirely. We argue here that an essential first step in a risk-management program is to quantify cash-flow exposure to macroeconomic and market risk. This is the information relevant for corporate hedging. However, it is the total level of cash flow in relation to the firm’s capital needs that is the information relevant for decision-making. The firm’s overall CFaR is then calculated based on an assessment of corporate risk exposure.
Keywords: Cash-Flow-at Risk; Corporate Hedging; Downside Risk; Risk Exposure; MUST-analysis; Value-at-Risk (search for similar items in EconPapers)
JEL-codes: F23 G30 G32 M21 (search for similar items in EconPapers)
Pages: 25 pages
New Economics Papers: this item is included in nep-fin, nep-mac and nep-rmg
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Published in Journal of Applied Corporate Finance, 2005, pages 21-31.
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Persistent link: https://EconPapers.repec.org/RePEc:hhs:iuiwop:0635
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