Risk Reduction for Energy Project Sponsors Through Synthetic, Revenue-Neutral Diversification
Financial institutions and insurance companies account for 96% of the activity in the $4.8 trillion credit derivatives market while corporations account for a mere 4%. This article makes a case for? synthetic, revenue-neutral diversification? as a method for energy firms to manage the credit risk in their long-term power-purchase agreements (PPAs). Synthetic, revenue-neutral diversification involves a firm buying insurance on assets in its portfolio and paying the associated insurance premium by simultaneously selling insurance to another firm, thus enabling it to avoid any cash expense. The primary objective of synthetic, revenue-neutral diversification is implicitly to change the firm?s asset portfolio and to increase diversification without reducing the firm?s revenues. In an example, two independent power producers use credit derivatives to diversify the geographic exposures of their PPA portfolios, thereby reducing their expected losses, improving their credit ratings, and lowering their cost of borrowing.
Risk Management and Value Creation in Financial Institutions
Figures.Tables.Symbols.Abbreviations.CHAPTER 1: Introduction.CHAPTER 2: Foundations for Determining the Link between Risk Management and Value Creation in Banks.Value Maximization in Banks.Value Maximization as the Firm's Objective.Valuation Framework for Banks.Problems with the Valuation Framework for Banks.Empirical Conundrum.Other Stakeholders' Interests in Banks.Risk Management in Banks.Definition of Risk.Definition of Risk Management.Role and Importance of Risk and Its Management in Banks.Link between Risk Management and Value Creation in Banks.Goals of Risk Management in Banks.Choice of the Goal Variable.Choice of the Stakeholder Perspective.Choice of the Risk Dimension.Choice of the Risk-Management Strategy.Ways to Conduct Risk Management in Banks.Eliminate/Avoid.Transfer.Absorb/Manage.Empirical Evidence.Summary.Appendix.Part A: Bank Performance.Part B: Systematic versus Specific Risk.CHAPTER 3: Rationales for Risk Management in Banks.Risk Management and Value Creation in the Neoclassical Finance Theory.The Neoclassical Finance Theory.Corollaries from the Neoclassical Finance Theory with Regard to Risk Management.The Risk Management Irrelevance Proposition.Summary and Implications.Discrepancies Between Neoclassical Theory and Practice.Risk Management and Value Creation in the Neoinstitutional Finance Theory.Classification of the Relaxation of the Assumptions of the Neoclassical World.The Central Role of the Likelihood of Default.Agency Costs as Rationale for Risk Management.Agency Costs of Equity as a Rationale for Risk Management.Agency Costs of Debt as a Rationale for Risk Management.Coordination of Investment and Financing.Transaction Costs as a Rationale for Risk Management.The Costs of Financial Distress.The Costs of Implementing Risk Management.The Costs of Issuance.The Costs of a Stable Risk Profile.Taxes and Other Market Imperfections as Rationales for Risk Management.Taxes.Other Market Imperfections.Additional Rationales for Risk Management in Banks.Summary and Conclusions.Appendix.CHAPTER 4: Implications of the Previous Theoretical Discussion for This Book.CHAPTER 5: Capital Structure in Banks.The Role of Capital in Banks.Capital as a Means for Achieving the Optimal Capital Structure.Capital as Substitute for Risk Management to Ensure Bank Safety.The Various Stakeholders' Interests in Bank Safety.Available Capital.Required Capital from an Economic Perspective.Determining Capital Adequacy in the Economic Perspective.Summary and Consequences.Derivation of Economic Capital.Types of Risk.Economic Capital as an Adequate Risk Measure for Banks.Ways to Determine Economic Capital for Various Risk Types in Banks (Bottom-Up).Credit Risk.Market Risk.Operational Risk.Aggregation of Economic Capital across Risk Types.Concerns with the Suggested Bottom-Up Approach.Suggestion of an Approach to Determine Economic Capital from the Top Down.Theoretical Foundations.Suggested Top-Down Approach.Assessment of the Suggested Approach.Evaluation of Using Economic Capital.Summary.CHAPTER 6: Capital Budgeting in Banks.Evolution of Capital-Budgeting Tools in Banks.RAROC as a Capital-Budgeting Tool in Banks.Definition of RAROC.Advantages of RAROC.Assumptions of RAROC.Deficiencies of RAROC.Deficiencies of the Generic RAROC Model.Modifying RAROC to Address Its Pitfalls.Fundamental Problems of RAROC.Evaluation of RAROC as a Single-Factor Model for Capital Budgeting in Banks.New Approaches to Capital Budgeting in Banks.Overview of the New Approaches.Evaluation of RAROC in the Light of the New Approaches.Implications of the New Approaches to Risk Management and Value Creation in Banks.Implications for Risk-Management Decisions.Implications for Capital-Budgeting Decisions.Implications for Capital-Structure Decisions.New Approaches as Foundations for a Normative Theory of Risk Management in Banks.Areas for Further Research.Summary.CHAPTER 7: Conclusion.References.Index.
Electrophysiological Studies of Penticainide (CM 7857), a New Antiarrhythmic Agent, in Mammalian Myocardium
The intracellular electrophysiologic properties of a new antiarrhythmic substance, penticainide, were studied in isolated rabbit, dog, and guinea pig myocardial preparations superfused or perfused with oxygenated Tyrode's solution. “Therapeutic” concentrations of penticainide (1.5 to 3 x 10-5 M) had little effect on sinus node automaticity; sinoatrial conduction was slightly delayed. In atrial, Purkinje and ventricular fibers, amplitude, and maximal rate of rise of phase 0 (dV/dtmax) were decreased by penticainide; Purkinje-ventricle conduction velocity was depressed. Penticainide did not significantly modify action potential duration (APD) of rabbit atria and dog ventricle and reduced APD and effective refractory period (ERP) of dog Purkinje and guinea pig ventricular fibers. Penticainide reduced APD heterogeneity of Purkinje-ventricle junction with a preferential effect at the gate and decreased tension amplitude of perfused papillary muscle in dog heart. The effect of penticainide on dV/dtmax was voltage and rate dependent; the resting block was weak. Thus, penticainide is a class 1 antiarrhythmic agent with properties of class 1B agents such as APD reduction and properties of class 1C agents such as slow recovery kinetic of rate-dependent block.