Hedging and Value in the U.S. Airline Industry
This study of 28 U.S. airlines asks:  Does fuel hedging add value to the airlines and, if so, how?  The results show that jet fuel hedging is positively related to airline firm value and the value premium increases in the proportion of the future fuel requirements hedged. The main source of value appears to be the preservation the firms’ ability to take advantage of investment opportunities.

Basel II: The Route Ahead or Cul-de-sac?
Basle II establishes new procedures for measuring the risk of bank loans and the capital that needs to be held against these loans. Ideally, individual loans would be viewed as part of a portfolio, with better diversified portfolios assigned lower risk. But because of the difficulty of measuring the risk of loan portfolios, the author urges regulators to focus on more realistic valuations and less on refinements of risk measurements.

Accounting and Valuation: How Helpful Are Recent Accounting Rule Changes?
The ongoing debate over the proper definition of “earnings” is misguided. The biggest problem faced by investors in evaluating earnings reports is getting complete and reliable information about the individual line items, not an inability to understand different accounting methods. Investors, when provided sufficient information about the components of earnings, can combine them in any way they find most useful.

The Promise of Credit Derivatives in Nonfinancial Corporations (and Why It’s Failed to Materialize)
Although industrial companies played a big part in the growth of foreign exchange, interest rate, and commodity price derivatives, they have had almost no role in the growth of credit derivatives. The article reviews the reasons why corporates may be reluctant to use credit derivatives and predicts that if the demand for credit risk transfer becomes more urgent, those obstacles will be only temporary roadblocks.

How Does the Corporate World Cope with Mega-Terrorism? Puzzling Evidence from Terrorism Insurance Markets
This article analyzes the role that insurance can play in providing commercial enterprises with financial protection against the economic consequences of major terrorist attacks. Beginning by explaining the design and key features of terrorism insurance programs in the United States, the United Kingdom, and Germany, it then provide a comparative analysis of the evolution of prices and take-up rates.

Navigating Amidst More Risk and Uncertainty
With the steady increase in the variety and scale of uncertainties and risks, the challenges for today’s executives have become ever more complex and daunting. As one of the few tools to constructively deal with uncertainties, scenario planning can powerfully link strategic and financial goals in a more integrated manner, while managing different risks, and often with some unexpected but useful benefits.

Incorporating Strategic Risk into Enterprise Risk Management: A Survey of Current Corporate Practice
This survey of 271 risk and financial executives in North American and European companies seeks to determine how they identify and manage strategic risks while integrating them into an enterprise-wide framework. The results provide insight into the forces behind the push for a more organized and integrated management of significant risks and the challenges companies encounter as they implement ERM.

Managing M&A Risk with Collars, Earn-outs, and CVRs
M&A transactions expose both the bidder and target shareholders to a number of major risks both prior to the close of the deal and during the post-close integration phase. This article describes how “collars”, earn-outs, and contingent value rights can be used to manage risks, using examples to illustrate the structure and pricing of such tools.

Risk Management and the Cost of Capital for Operating Assets
Risk management affects a company’s cost of capital. If a firm manages idiosyncratic risk, the correct cost of capital for the operating investment is not the firm’s enterprise WACC, but rather the required return on the assets being funded. The author demonstrates how to adjust the firm’s overall WACC to find the cost of capital for the operating assets to be acquired.