Whitepaper: Measuring RoI on Risk Management
This is (arguably) one of the World’s first White papers on RoI on Risk Management for Energy / Commodity companies. In this White Paper, we discuss the Returns that can be achieved from investments in Risk Management. We present a model to measure RoI on Risk Management that can be easily customized and applied to any company. We also introduce a new Ratio ERR (Excess Risk Ratio) that uses Expected Shortfall (ES) and Value-at-Risk (VaR) to arrive at the Returns from Risk Management. The paper draws upon observations of ERR from different commodities.
To learn more about Expected Shortfall (ES), read our blog post “Commodity Risk Management Beyond VaR“.
We start with putting the problem in context, and understanding why measuring Returns on RM is so difficult. We also look at related / similar studies in other sectors (Banking and Financial Institutions).
Our results indicate that the RoI for Risk Management for Energy / Commodity Companies is in the range of 3.2% – 14% of average Portfolio Value.
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