The Black Swan Problem Risk Management Strategies for a World of Wild Uncertainty

An incisive framework for companies seeking to increase their resilience

In The Black Swan Problem: Risk Management Strategies for a World of Wild Uncertainty, renowned risk and finance expert Håkan Jankensgård delivers an extraordinary and startling discussion of how firms should navigate a world of uncertainty and unexpected events. It examines three fundamental, high-level strategies for creating resilience in the face of “black swan” risks, highly unlikely but devastating events: insurance, buffering, and flexibility:

The author also presents:

• Detailed case studies, stories, and examples of major firms that failed to anticipate Black Swan Problems and, as a result, were either wiped out or experienced a major strategy disruption
• Extending the usual academic focus on individual biases to analyze Swans from an organizational perspective and prime organizations to proactive rather than reactive action
• Practical applications and tactics to mitigate Black Swan risks and protect corporate strategies against catastrophic losses and the collateral damage that they cause
• Strategies and tools for turning Black Swan events into opportunities, reflecting the fact that resilience can be used for strategic advantage

An expert blueprint for companies seeking to anticipate, mitigate, and process tail risks, The Black Swan Problem is a must-read for students and practitioners of risk management, executives, founders, managers, and other business leaders.

HÅKAN JANKENSGÅRD is Associate Professor of Corporate Finance at Lund University where he teaches Corporate Valuation and Corporate Risk Management. He was formerly a corporate risk manager at Norsk Hydro and has published research on risk management in the Journal of Banking & Finance and Financial Management.

Prologue 3

Chapter 1: The Swans Revisited 7

The nature of randomness 8

The Moving Tail 11

The role of expectations 16

What makes us suckers? 20

The relativity of Black Swans 24

Meet the preppers 28

Chapter 2: Corporate Swans 31

The Board’s perspective 31

Swans attack 33

Strategy Swans 35

The Swan within 39

The growth fetish 42

The fear factor 47

The Chief Executive Swan 49

Swans on the rise 52

Chapter 3: The Black Swan Problem 60

Tail risk and firm value 60

Understanding wipeouts 65

Strategy disruption 71

All you zombies 76

The affordability issue 78

The conundrum 84

Chapter 4: Greeting the Swan 90

Randomness redux 90

The roads not taken 98

Functional stupidity 102

The Swanmakers 108

On tools and models 112

A Swan radar for the Board 116

Chapter 5: Taming the Swan 122

Drawing the line 122

Distance to wipeout 129

Risk capital 131

Stress testing 140

The exit option 146

Resilience vs endurance 150

Quantitative models 155

Liquidity is king 162

Chapter 6: Catching the Swan 166

Antifragility 167

Restoring the true path 170

Buying on the cheap 173

Opportunity capital 176

Flight to safety 182

Risk as strategy 187

Chapter 7: Riding the Swan 192

Risk shifting 192

A beautiful strategy 199

Fuel for growth 203

Narcissism redeemed 208

A tail of two companies 211

End of the ride 215

Swans to the rescue? 217

Epilogue 221

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