Black Swan Problem (eBook)

Håkan Jankensgård is a risk philosopher and modeler. He has been passionate about the philosophy, theory and practice of risk management for over 25 years. He has done extensive academic research into various aspects of this field such as the theory of enterprise risk management, firms' hedging strategies, risk governance, and risk capital. This research has been published in well-respected, peer-reviewed academic journals like Financial Management, Journal of Banking and Finance, Journal of Accounting Business & Finance, and European Financial Management. He is actively developing the concept of Risk budgeting, which is about incorporating knowledge about risk and risk appetite into the forecasting models that management uses for financial and strategic decision-making. Jankensgård is a professor of corporate finance and holds a PhD from Lund University.

Prologue 3

Chapter 1: The Swans Revisited 7

The nature of randomness 8

The Moving Tail 11

The role of expectations 16

What makes us suckers? 20

The relativity of Black Swans 24

Meet the preppers 28

Chapter 2: Corporate Swans 31

The Board's perspective 31

Swans attack 33

Strategy Swans 35

The Swan within 39

The growth fetish 42

The fear factor 47

The Chief Executive Swan 49

Swans on the rise 52

Chapter 3: The Black Swan Problem 60

Tail risk and firm value 60

Understanding wipeouts 65

Strategy disruption 71

All you zombies 76

The affordability issue 78

The conundrum 84

Chapter 4: Greeting the Swan 90

Randomness redux 90

The roads not taken 98

Functional stupidity 102

The Swanmakers 108

On tools and models 112

A Swan radar for the Board 116

Chapter 5: Taming the Swan 122

Drawing the line 122

Distance to wipeout 129

Risk capital 131

Stress testing 140

The exit option 146

Resilience vs endurance 150

Quantitative models 155

Liquidity is king 162

Chapter 6: Catching the Swan 166

Antifragility 167

Restoring the true path 170

Buying on the cheap 173

Opportunity capital 176

Flight to safety 182

Risk as strategy 187

Chapter 7: Riding the Swan 192

Risk shifting 192

A beautiful strategy 199

Fuel for growth 203

Narcissism redeemed 208

A tail of two companies 211

End of the ride 215

Swans to the rescue? 217

Epilogue 221