The Handbook of Corporate Financial Risk Management (2nd Edition)
First published:
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Introduction to Equity Risk
Introduction to Equity Risk
Foreword
Introduction
Theory and Practice of Corporate Risk Management
Theory and Practice of Optimal Capital Structure
Introduction to Funding and Capital Structure
How to Obtain a Credit Rating
Refinancing Risk and Optimal Debt Maturity
Optimal Cash Position
Optimal Leverage
Introduction to Interest Rate and Inflation Risks
How to Develop an Interest Rate Risk Management Policy
How to Improve Your Fixed-Floating Mix and Duration
Interest Rates: The Most Efficient Hedging Product
Do You Need Inflation-linked Debt?
Prehedging Interest Rate Risk
Pension Fund Asset and Liability Management
Introduction to Currency Risk
How to Develop Currency Risk Management Policy
Translation or Transaction: Netting Currency Risks
Early Warning Signals
How to Hedge High Carry Currencies
Currency Risk on Covenants
Optimal Currency Composition of Debt 1: Protect Book Value
Optimal Currency Composition of Debt 2: Protect Leverage
Cyclicality of Currencies and Use of Options to Manage Credit Utilisation
Managing the Depegging Risk
Currency Risk in Luxury Goods
Introduction to Credit Risk
Counterparty Risk Methodology
Counterparty Risk Protection
Optimal Deposit Composition
Prehedging Credit Risk
xVA Optimisation
Introduction to M&A-related Risks
Risk Management for M&A
Deal-contingent Hedging
Introduction to Commodity Risk
Managing Commodity-linked Revenues and Currency Risk
Managing Commodity-linked Costs and Currency Risk
Commodity Input and Resulting Currency Risk
Offsetting Carbon Emissions
Introduction to Equity Risk
Hedging Dilution Risk
Hedging Deferred Compensation
Stake-building
We conclude this book with a short section on corporate risks arising from the volatility of listed equity shares. The subject of equity risk and equity derivatives always attracts a significant amount of media attention.11 See, for example, “An Opaque $3.5 Billion Business Gives Wall Street a Hangover”, Bloomberg News, March 28, 2018. Why is this the case and where does the mystique of equity risk come from? The first reason is that most people are more familiar with stock markets than with other risk classes, such as interest rates or currencies. The second reason for the fascination with equity risk is that it is often linked to large M&A transactions from the front pages of the business press. On the other hand, corporate equity derivative deals are rare, generally secretive and less is understood about them than about other kinds of corporate risks. This is in contrast with the everyday topic of currency risk, where the deals are very regular, generally straightforward and attract little or no media attention, except in those rare cases when something goes wrong.
As we saw in Figure 1.4 in Chapter 1, the corporate use of equity derivatives is way behind FX and interest
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