A Crisis and a Cause
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Transcript of A Crisis and a Cause
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The world was flooded with Money from the german war payments all financed by US Loans without any real substance behind. The same time the USA consumers built their lives on credit. Experts wrote books explaining why recession was made impossible by modern financial science.
Winston Churchill Minister of Exchequer 1925 – 27 about the cause of the great Depression
A Crisis and a Cause
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Extreme Amounts of Liquidity due to huge credits. This credits became possible due to mathematical constructs which made risk disappear.The very foundations of these constructs where wrong and everybody involved knew that.These constructs show chaotic behavior under certain (actual) circumstances. Thus it became impossible to calculate their real value.The Reason for the crisis is a Riskmanagement which tried to eliminate risk
A different Krisis and a Cause
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Eine andere Krise und ihre Ursache
Normal Distribution was used zu describe riskprofiles that were not caused by stochastik events.(neglecting the Thick Tails)
Coupling between the Risks was neglected
Mathematicmanageable
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CEEVienna
Middle East
• 2 Billion Turnover• 6000 MA• 100% Lufthansa Daughter
• Connects East EU, CEE and Middle East with West EU and Long Range
• High Frequencies• Very short Connecting times
In Short:• Uses geopolitical Advantages of Vienna
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CEEVienna
Middle East
Austrian Airlines Risk ManagementTil 2006 Riskomanagement Classic
Documentation of risks and how to avoid them Since 11/2006 Riskmanagement New
Quantification of Opportunities and the Risks attached
Since 08 - 10 Department Risk and Opportunities ManagementBetter decision making (1 year range)
Since 2010 Risk Quantification used as a standard method of Controlling ( 1 year range)
From 2012 Broadband Planning (5 year range)
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• Classic methods to obtain and bolster strategical und tatical plans reduce the world to the most assured case.
• ROI• Long Term Plan• Budget• Projectbudget
• The most assured case is always at risk.• Result: Gut feeling makes the decision.
What is Riskmanagement?
Riskmanagement makes gut -feeling transparent
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Opportunity and Risk Management Key Words
• Managing risks enhances AUSTRIAN´s opportunities
• We moderate risk evaluation and quantification
• We make gut feeling transparent and comparable
• There is no such thing as a non-quantitative Chance (albeit you may need a lot of work)
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Direct quantification of thick tails defeats gut-feelings
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Add the Thick Tails with Monte Carlo
Customer loss worlwide 15%EW 5% once in 20 years
Customer loss worldwide 5%EW 20% once in 5 years
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50% Percentile vs Financial Forcast
Controlling Forcast end of Q1: -8mio€
Risk 50% Percentile -16mio€
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Shift of the most likely case Thick tails are not the only consequence
50% shift
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Decouple first – then compare
Risk 50% Percentile -9mio€Risk 50% Percentile -16mio€
Controlling Forcast end of Q1: -8mio€
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Risikcoupling Price of crude with economy
Many risk minimising strategies have a big inherent downside Risk
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AF Crude Hedging with Collar
2007 2008
Brent USD
AF acts as insurer. They sell Put Options for 400mio€, thus financing the call option
AF is covered against rise of crude with a call option worth 400mio€
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Coupling 9/11 or 1973 with price for crude
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Insuring the results of a company is a paradox
• No positiv results due to extrem costs for insurance, or in exchange a new and possible letal risk.
• Only live insurance makes sense.
• The actual survival of a company does not depend on revenue - it depends on liquidity.
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