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The new risk management: the good, the bad, and the ugly

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  • Philip H. Dybvig
  • Pierre Jinghong Liang
  • William J. Marshall

Abstract

In a 1997 Review article, the authors described the good, the bad, and the ugly features of what they called the new risk management, which is the use of financial derivatives to hedge risk in firms. Since the article was first published, the ?new? risk management has become commonplace and indeed played a big role in the financial crisis. As a result, the original article is more relevant today than when it was first published. This updated version of the article contains the same examples and critical analysis as in the original article but includes an updated description of the accounting rules and suggestions for designing a risk management policy.

Suggested Citation

  • Philip H. Dybvig & Pierre Jinghong Liang & William J. Marshall, 2013. "The new risk management: the good, the bad, and the ugly," Review, Federal Reserve Bank of St. Louis, vol. 95(July), pages 273-291.
    • Handle: RePEc:fip:fedlrv:y:2013:i:july:p:273-291:n:v.95no.4
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    References listed on IDEAS

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    1. Franklin R. Edwards & Michael S. Canter, 1995. "The Collapse Of Metallgesellschaft: Unhedgeable Risks, Poor Hedging Strategy, Or Just Bad Luck?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 8(1), pages 86-105, March.
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    Cited by:

    1. Teemu Pennanen, 2014. "Optimal investment and contingent claim valuation in illiquid markets," Finance and Stochastics, Springer, vol. 18(4), pages 733-754, October.
    2. Chanont Banternghansa & Michael W. McCracken, 2011. "Real-time forecast averaging with ALFRED," Review, Federal Reserve Bank of St. Louis, vol. 93(Jan), pages 49-66.
    3. Berghöfer, Britta & Lucey, Brian, 2014. "Fuel hedging, operational hedging and risk exposure — Evidence from the global airline industry," International Review of Financial Analysis, Elsevier, vol. 34(C), pages 124-139.
    4. Parantap Basu & William T. Gavin, 2011. "What explains the growth in commodity derivatives?," Review, Federal Reserve Bank of St. Louis, vol. 93(Jan), pages 37-48.

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    Risk management;

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