Redefining Risk & Return

Frontmatter

1. Introduction

Abstract

The purpose of this book is to change our usual description of risk and uncertainty.

Jesper Lyng Jensen, Susanne Sublett

2. How to Read a Monte Carlo Simulation Graph

Abstract

This book includes graphical representations of Monte Carlo simulations, also known as Monte Carlo simulation graphs.

Jesper Lyng Jensen, Susanne Sublett

3. Introduction to the Cost of Running Out of Capital

Abstract

The cost of running out of capital is a big, complicated question. Running out of capital is defined here as a situation of not having enough available funds to draw on but still having financial obligations towards others. In other words, we have not necessarily run out of assets in the form of long-term investments and other assets of value, but we have no more cash, so we have run out of capital.

Jesper Lyng Jensen, Susanne Sublett

4. Risk and Uncertainty

Abstract

Defining and understanding risk and uncertainty is a relatively complex affair, which in itself may be an obstacle to passing on new knowledge of the cost of risk, which is the primary purpose of this book.

Jesper Lyng Jensen, Susanne Sublett

5. The Cost of Running Out of Capital

Abstract

This book deals with the cost of suddenly running out of capital. If such a situation occurs, it is normally because one or several risk events have materialized.

Jesper Lyng Jensen, Susanne Sublett

6. Capital

Abstract

When we talk about the cost of running out of capital, it is obvious that capital in itself plays an important role.

Jesper Lyng Jensen, Susanne Sublett

7. Insurance

Abstract

Now that we have shed light on the importance of capital for the structural risk cost, it is time to take a look at another important risk tool available when addressing risk: insurance.

Jesper Lyng Jensen, Susanne Sublett

8. The Different Costs of Risk

Abstract

It is important to understand that with the existence of structural risk, risk no longer costs the same for all risk owners. Again, this is a point where the properties of the structural risk cost strongly challenge the leading academic view of risk because the conclusion stating that risk does not cost the same for everybody means that risk owners with low reserve capital and a low level of insurance have higher risk costs. Risk owners with low reserve capital and a low level of insurance are simply not competitive when it comes to assuming risk.

Jesper Lyng Jensen, Susanne Sublett

9. Stock Taking

Abstract

When trying to understand structural risk cost, there are many factors to keep track of.

Jesper Lyng Jensen, Susanne Sublett

10. Macroeconomics

Abstract

Having looked at the more technical sides of the structural risk cost caused by red phone situations in a risk owner’s life, it is interesting to look at how significant elements in society theoretically affect the scope of the structural risk cost in society.

Jesper Lyng Jensen, Susanne Sublett

11. Self-Chosen Risk and Government Intervention

Abstract

In the introductory section of this book, it was beneficial not to distinguish between self-chosen risk, such as an investment, and risk coming to a risk owner from the surrounding world.

Jesper Lyng Jensen, Susanne Sublett

12. The Top Ten Most Important Realisations Regarding Structural Risk

Abstract

Structural risk is a new economic theory for risk costs, and it generates new insight and understanding concerning a number of aspects. These and more are all described in this book, but in the following section I will briefly, for convenience, outline what I believe are the most important messages.

Jesper Lyng Jensen, Susanne Sublett

13. The Cost of Structural Risk Management in Liberalism

Abstract

The previous sections of this book deal with microeconomic and macroeconomic theory. This book contributes quite specifically to economic risk theory by clarifying the consequences of risk owners running out of capital in certain instances because of sudden, unexpected events so that they are in danger of having to accept unwanted, unnecessarily high financing costs associated with a risk event.

Jesper Lyng Jensen, Susanne Sublett

14. How Is This Book to Be Understood and What Kind of Society Does It Wish to Create?

Abstract

When we change risk from “Risk = Probability × Consequence” into “Risk = (Probability × Consequence) + Structure”, we are introducing a fundamental change to the understanding that has formed the basis of much of our economic theory apparatus, the formation of our society, and our perception of the world.

Jesper Lyng Jensen, Susanne Sublett

Backmatter