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Whitepaper: The Value Of Real And Financial Risk Management

by Universite de MontrealJan 01, 2008

Production and operations activities and real risk management activities distribute cash flows over states of nature and time periods, leading to a transformation possibility frontier similar to a production function. This paper shows how changes in the price of risk affect the value maximizing levels of real activities. A firm is characterized as a nexus of projects with their associated cash flows. Production and operations activities and real risk management activities distribute cash flows over states of nature and time periods, leading to a transformation possibility frontier similar to a production function.