1.1. CHAPTER OUTLINE

This chapter begins by listing the learning objectives of the book. We then ask why firms should be occupied with risk management in the first place. In answering this question, we discuss the apparent contradiction between standard investment theory and the emergence of risk management as a field, and we list theoretical reasons for why managers should give attention to risk management. We also discuss the empirical evidence of the effectiveness and impact of current risk management practices in the corporate as well as financial sectors. Next, we list a taxonomy of the potential risks faced by a corporation, and we briefly discuss the desirability of exposure to each type of risk. After the risk taxonomy discussion, we list the stylized facts of asset returns, which are illustrated by the S&P 500 equity index. Finally, we present an overview of the remainder of the book.

1.2. LEARNING OBJECTIVES

The book is intended as a practical handbook for risk managers as well as a textbook for students. It suggests a relatively sophisticated approach to risk measurement and risk modeling. The idea behind the book is to document key features of risky asset returns and then construct tractable statistical models that capture these features. More specifically, the book is structured to help the reader to do the following:

• Become familiar with the range of risks facing corporations and learn how to measure and manage these risks. The discussion will focus on various aspects of market risk.