Risk Management

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Risk Management Advisory

We inhabit a complex system that has virtually nothing to do with the neoclassical model taught in Economics. That’s why economists failed to predict the financial crisis. Conventional capital market theory is based on a linear view of the world, one in which Investors have rational expectations; they adjust immediately to information about the markets and behave as if they know precisely how the structure of the economy works. 

The first step in the risk-management process is risk identification; in other words, the identification of all significant risks affecting the value of the company and of loss exposures. Risk identification requires an overall understanding of the business and the specific economic, legal and regulatory factors which affect the business.

Evaluation of the potential frequency and severity of losses due to those risks. This typically involves managers quantifying the exposure of the company to each risk factor, and usually involves measuring the expected losses and the standard deviation of losses over a period of time. This step generates the right incentive for a company to hedge, but also helps managers to assess the costs and benefits of loss control. Another important parameter here is the sensitivity of each company to the different risk factors. This varies from company to company but also depends on the operational strategy of each company in the market.

Development and implementation of appropriate methods for the management of the risks identified and evaluated. After the risks have been identified and the sensitivity of a company to those risks has been adequately quantified, the next step is to select the instruments which are best suited to the management of those risks. As mentioned above, this also depends on the type of risk that is to be hedged. For instance, due to their nature, pure risks are usually managed using appropriately drafted insurance policies. Price risks, on the other hand, are managed using derivative contracts such as futures, options and swaps.

Finally, the last step in the risk-management process is monitoring the performance and suitability of the risk-management methods and strategies on an ongoing basis. As market dynamics change continuously, the exposure of the company to the different sources of risk may change accordingly. Some risks may become more significant that others. The company needs to be aware of how its exposure to the different sources of risks changes and what parameters it needs to consider in order implementing risk management strategies. Even in cases where price risk is hedged, using a derivative contract, there is a possibility that due to shifts in market fundamentals the hedge may no longer be necessary; therefore, risk monitoring is required even for positions that are fully hedged.

Risk management advisory

Our Purpose

Why should firms manage risk?

Capital Structure and the cost of capital: a major source of corporate default is the inability of a company to service its debt. Other things being equal, the higher the debt-to-equity ratio for a company, the riskier the firm. Risk management can therefore be seen as allowing the firm to have a higher debt-to equity ratio, which may be beneficial due to increased interest tax shields.

Benefits for public listed companies: There is empirical evidence that risk management reduces the variability of share prices in the mining and energy sectors in relation to changes in the price of the underlying commodity. Studies have also found that companies that follow active risk management strategies tend to outperform comparative companies that do not manage their risks.

Taxes: Risk management can help reduce tax liability by reducing the volatility of expected earnings. The argument is that lowering the volatility of future pre-tax income will result in lower variability of the expected tax position and, hence, higher expected after-tax income.

Bankruptcy Costs: the direct and indirect costs of bankruptcy are an important factor affecting the value of corporations. These include the administration costs associated with bankruptcy and also costs such as loss of customers, loss of key employees, and restrictions imposed on the operations and management of the company. These costs are directly related to the probability of default and are discussed in Brealey et al. (2007). Since risk management reduces the variability of expected earnings, it also reduces the probability of an organization approaching bankruptcy and, hence, it can increase the value of a firm. 


Our Solutions

How we effectively advise towards risk management and limiting risk exposures?

Capital preservation: The core to risk management is the preservation of capital. We are committed to advising our clients on “well calculated”/ risk-adjusted returns at the optimum duration, rather than looking for “out of the blue” performance.

Advanced Data Analytics: We use machine learning and deep learning tools to create a risk management tool which provides us live data on market conditions which thereon quantifies potential risks. Our systems are active 24/7/365 to maximize our awareness of the market.

Risk Management: We follow up and advise upon implementation of strict dynamically adaptive risk management policies to provide additional security. Each policy is uniquely crafted according to each clients needs and business nature.

Risk Monitoring: Live risk monitoring and market monitoring through A.I systems to advise on adaptiveness of current risk management policy. 

Through the following method 

Success can be engineered.





Our main concept is to constantly monitor exposures to the multiple risks within the industry, and with cross-related industries, providing precise measurements through machine learning A.I.

If you think you don't risk anything
you risk even more.

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