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Reputation risk mitigation in investment strategies

Author

Listed:
  • Alexandra Moura
  • Carlos Oliveira

Abstract

We consider an investment model in which a firm decides to invest in the market, taking into account its future revenue and the possible occurrence of adverse events that may impact its reputation. The firm can buy an insurance contract at the investment time to mitigate reputation risk. The firm decides when to enter the market and the insurance strategy that maximizes its value. We consider three types of insurance contracts and different premium principles. We provide analytical conditions for the optimum and study several numerical examples. Results show that the firm’s optimal strategy depends on the risk size, the firm’s risk aversion, and the insurance premium.

Suggested Citation

  • Alexandra Moura & Carlos Oliveira, 2024. "Reputation risk mitigation in investment strategies," Working Papers REM 2024/0309, ISEG - Lisbon School of Economics and Management, REM, Universidade de Lisboa.
    • Handle: RePEc:ise:remwps:wp03092024
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    File URL: https://rem.rc.iseg.ulisboa.pt/wps/pdf/REM_WP_0309_2024.pdf
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    References listed on IDEAS

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    Keywords

    Reputaion Risk; Insurance; Risk Mitigation; Investment Strategies; Real Options.;
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