Publication: Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy
Date
2003-11
ISSN
Published
2003-11
Author(s)
Gurenko, Eugene
Mahul, Olivier
Abstract
The authors provide a conceptual
framework for designing a comprehensive risk financing
strategy for a firm, using an optimal combination of three
instruments: self-retention, contingent debt, and insurance.
Using an original conceptual model, the risk management
decisions of the firm are first decomposed into two
sets-choosing attachment points for each layer of financing
used in the overall risk financing structure, and, then
determining optimal risk allocation arrangements within each
layer of risk. This model allows the authors to show how
these optimal risk financing arrangements are driven by the
costs of risk management instruments, the risk
characteristics, and the firm's borrowing constraints.
Finally, the authors provide an original perspective to
think about optimal ex ante risk management strategies,
based on a combination of insurance, savings, and credit at
the microeconomic or macroeconomic levels.
Link to Data Set
Citation
“Gurenko, Eugene; Mahul, Olivier. 2003. Combining Insurance, Contingent Debt, and Self-Retention in an Optimal Corporate Risk Financing Strategy. Policy Research Working Paper;No. 3167. © World Bank, Washington, DC. http://hdl.handle.net/10986/17904 License: CC BY 3.0 IGO.”
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