Downside risk

The price risk can be defined and understood in alternative ways. One can view the risk as the probable fluctuation of the price around its expected level (i.c., the mean). The larger the deviation around the mean the larger is the perceived price risk. The volatility around the mean can be measured by standard deviation and be used as a quantitative measure for price risk. At the same time, in the industry it is common to define risk referring only to a price movement that would have an adverse effect on the profitability. Thus, one would talk about an upward potential and downside risk. ... 

As stated above, forum participants were divided into three groups, and each group was assigned one of the three policy approaches for consideration. The purpose of the exercise was to compare the approaches and determine if one of them is more robust for some scenarios and some outcomes than others. A robust solution is one that has few if any downside risks or negative impacts as it applies to all scenarios and outcomes. Approaches that have some serious downsides are not as robust as those that minimize the negative outcomes. 

If the no-problem scenario is unlikely, then the aggressive policy approach would be robust, with small downside risks to the economy given the environmental-problem scenario. 

Capital structure is concerned with the ratio of borrowed capital to owner s equity. When inflation is low and the economy is stable, it is frequently cheaper to use borrowed money, if a company can secure lenders. However, a highly leveraged company—that is, one with a high debt-to-equity ratio—faces downside risk when business is bad. Stockholders receive high dividends when profits are good but bondholders expect the interest and principal to be paid on time, with the threat to a firm of insolvency and bankruptcy. Section 8.4.3 shows the effect of debt-to-equity ratio on company operations. Financial officers of companies are concerned with the optimum debt-to-equity ratio. 

This theory is wrong on a number of counts (Senn, 1998a). First, the probability of failure does not constitute an adequate index of the downside risk of a project, for reasons discussed earlier. Suppose that the project is highly speculative because it is unlikely to pass toxicological investigation but not otherwise expected to be problematic. 

At present, there is no case for tipping the balance towards a hydrogen transition. As the NRC (2008, p. 104) explains, there is a downside risk of pushing HFCVs (or any other specific technologies) before they are really ready or if they turn out not to be the best option, which could be extremely expensive and disruptive . 

Downside risk This measure, introduced by Eppen etal. (1989) in the framework of capacity planning for the automobile industry, is an alternative and useful way of... 

The direct use of the probabilistic definition of risk (given by the cumulative distribution curve) or the closely related concept of downside risk as a means of assessing risk is recommended. 

When downside risk at 3.5 billion dollars is penalized, a design that reduces risk and does not have a large effect on ENPV was obtained. The design obtained is illustrated in Table 12.2. This result also suggests a GTL process, but at another supplier location... 

Table 12.2 Results for stochastic model (200 scenarios) with downside risk at B 3.5 minimized. Cas commercialization in Asia...

In turn. Figure 12.21 shows the spectrum of solutions obtained using downside risk through goal programming. In this spectrum, several solutions that reduce risk even compared to the solution not using inventory can be found. Thus ... 

Floating-rate notes can include additional features. One example is the inclusion of cap, floor and collar clauses. A floater with cap feature means that the reference rate cannot overcome the threshold rate defined in the indenture. Usually the threshold is expressed in terms of coupon, that is after a coupon threshold (e.g. 6%, reference rate plus quoted margin) the investor receives at maximum the cap level. In this case, the floater is not completely covered by rising interest rates, in which after the threshold the floater trades as a conventional bond. In contrast, a floater with a floor feature represents the minimum coupon level that an investor can receive, hedging to the downside risk of interest rates. If the bond includes both cap and floor, this feature is known as collar or collared floating-rate note. The bond can include also a drop-lock feature that after a threshold it ceases to float. 

Martin L. Leibowitz and Roy D Henriksson, Portfolio Optimization with Shortfall Constraints A Confidence-Limit Approach to Managing Downside Risk, Financial Analysts Journal (March-April 1989), pp. 34-41. 

The paper [36] su ests that balancing expected profit with downside risk causes capacity choices to value the benefit of flexible resources in the supply network. 

The analysis here is a limited in that it does not consider downside risk in particular. We are also not considering safety aspects, merely loss of continuity of supply—only this is accounted for in the cost of an unmet demand, cp. 

Our work so far assumes that both the supplier and the retailer in the supply chain adopt the satisficing objectives. However, there are other types of objectives formanagers and/orcompanies in business practice. These objectives include expected profit maximization (EPM), expected utility maximization, and expectedprofit maximization subjectto downside-risk constraint (Gan et al., 2005). If this is the case, how could we design Pareto-optimal and/or coordinating contracts for such a supply chain ... 

Gan, X., Sethi, S., Yan, H. (2005). Channel coordination with a risk-neutral supplier and a downside-risk-averse retailer. Production and Operations Management, 14, 80-89. 

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