Anastasia V. Kartasheva
Assistant Professor of Insurance and Risk Management
Department of Business and Public Policy
The Wharton School, University of Pennsylvania
Insurance 205/805 explores how individuals and firms assess and evaluate risk, the tools available to successfully manage risk, and real-world frictions that limit the amount of risk-sharing in the economy. Individuals and firms confront risk in nearly all decisions they make. Individuals face uncertainty in their choice of career, their spending and saving decisions, family choices, and many other facets of life. Similarly, the firm’s value is at risk from a variety sources. The bankruptcy of a key supplier, a sharp rise in the cost of financing, the destruction of an important asset, or a liability suit can quickly squander the value created by a firm. The class explains the products and institutions that we see in the world.
INSR 210/810 presents the fundamentals of risk management. The strategic approach to risk management requires understanding of risk measures, insurance, financial and commodity derivatives, as well as alternative risk financing. The course focus is on the current practices and challenges of implementing risk management programs in financial and non-financial corporations. Case discussions are the core of the course, combined with development of tools necessary to measure and manage risks. Students will learn how to measure both the costs and benefits of managing risks and therefore be able to identify sound financial risk management practices leading to increase in firm value.
The course provides an advanced introduction to contract theory. It contains a mixture of foundational theories and applications to fields such as labor, regulation, corporate finance and industrial organization.
This case examines Metallgesellschaft AG (MG) hedging program that was suggested as a cause of MG bankruptcy in 1993. MG’s U.S. subsidiary, MG Refining and Marketing Inc. (MGRM) offered its customers fixed price long term oil contracts.. MGRM then hedged its exposures to oil prices through a synthetic storage strategy that allowed it to secure its oil supply via futures markets. The huge losses from the futures trades in 1993 ultimately led to the near bankruptcy and subsequent bailout from a consortium of international banks. This case presents subtle nuances of forward and futures trades and discusses various risk management issues that a manager needs to consider when putting on a derivative trade. Using an illustrative example and historical data, the case evaluates MGRM’s hedging program.