Arising from financial institutions' need to hedge and diversify credit risk, credit derivatives have now become a major investment tool. Almost all credit derivatives take the form of the credit default swap, which transfers default risk from one party to another. Most credit default swaps were...

Economic capital (also referred to as "risk capital" or "risk-based capital") is the amount of capital, generally in the form of equity or equity equivalents, that is necessary to provide an adequate cushion against lower-than-expected operating results. Over the last two decades, the concept...

The fact that 92% of the world's 500 largest companies recently reported using derivatives suggests that corporate managers believe financial risk management can increase shareholder value. Surveys of finance academics indicate that they too believe that corporate risk management is, on the...