Cash Flow at Risk

Cash Flow at Risk - FINC 782 Energy Markets Portfolio...

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1 Cash Flow at Risk FINC 782: Energy Markets Portfolio Analysis AB Freeman School of Business, Tulane University, New Orleans, Fall 2007 Leslie McNew Email at [email protected] 865-5036
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2 Risk Management Risk Management Corporates Commodity Risk Equity Risk Currency Risk Interest Rate Risk Traditionally managed separately using VaR Ignores particular diversification or natural concentration risk Does not present risk metric data in corporate terms such as EBITDA, EVA or EPS
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3 VaR vs. Cash Flow at Risk (CFaR) VaR CFaR 1. Bottom up approach 1. Top down approach 2. Quantification of risks caused by individual financial assets 2. Review cash flow directly with 3. Additive risk assumptions to arrive at probable earnings assumption that all risks to a corporation distributions are manifest in shocks to expected earnings 4. Does not address earnings 3. Cash flow analysis leads back to what creates risk 5. Does not address cash reserves in first place
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4 VaR vs. Cash Flow at Risk (CFaR) Value at Risk:
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