What this chapter is about

This chapter tells you what to expect in this course. It provides the motivation by describing the unique perspective and approach driving the course. There are 2 distinct perspectives about our approach to risk management.

First, this is a course for "End Users." Most courses in risk management are taught from the perspective of the financial corporation--a bank or a hedge fund. This course is different. It is organized specifically for non-financial corporations. This different perspective is fundamental. How?

Foremost is the question of "where is value created?" Risk is neither good nor bad. Risk management is not just about hedging, not just about reducing or avoiding or offloading risks. What, then, is it about? That depends. The task at hand is determined by the non-financial company's own activities, its sources of competitive advantages, how it generates profits. The purpose of risk management is to support these activities. It may involve adding risk or subtracting risk, or it may simply involve measuring and pricing the risk correctly. It all depends on how risk intersects with the company's strategic objectives. The student is forced to confront directly questions of exactly how financial innovation adds value.

Next, we focus more on the strategic element of risk management, and less on the tactics and execution. Details about financial products and trading strategies are downplayed, and the company's particular situation and its needs are the focus.

Second, risk management is about the revolution in finance that began in the last three decades of the twentieth century and that continues today. That revolution has comprehensively redefined cutting edge financial analysis. Unfortunately, in the practice of corporate finance, the revolution has only had limited impact. We still teach MBAs about risk in basically the same way that we taught them before this revolution. Risk management in corporate finance is consigned to a small subset of tasks handled by specialists and opaque to general managers. That is NOT how it should be. Risk is at the core of all finance issues. Risk management is not a unique specialization, one among many. Risk management is a general toolkit for addressing all aspects of corporate finance. The tools and insights of risk management need to be accessible to all financial managers.

We re-teach corporate finance, but in the new, revolutionary tradition. This course is a comprehensive, new look at all elements of corporate finance, not just a couple of subsidiary tasks. We have the courage to demand of the student that they engage fully with the core revolutionary advances in finance.

Current events and hot topics

Is financial innovation good for the economy?

A premise of this course is that the revolution in finance that is risk management can help non-financial companies be more productive. Sometimes it is worthwhile stepping back and questioning a premise. The recent financial crisis certainly invited many prominent economists, among others, to do just that.

Former Chairman of the Federal Reserve Paul Volcker has several times expressed strong reservations about the value of many of the financial innovations of recent years. One such intervention occured in a give-and-take with bankers and others hosted by the Wall Street Journal. Excerpts from the transcript can be found here:

Princeton Economist Paul Krugman has written often in his New York Times column and blog about how many forms of financial innovation have been harmful, not helpful. Some of these can be found here:

MIT economist Simon Johnson and his coauthor James Kwak have also made a strong argument questioning the value of financial innovation in an article in the magazine Democracy, as well as on their blog, Baseline Scenario. Their critique can be found here: