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Contributor Biographies

David Shimko

President, Asset Deployment, USA
David ShimkoDavid Shimko

David Shimko holds a PhD in finance from Northwestern University. He has taught finance at the Kellogg Graduate School of Management at Northwestern University, the Marshall School of Business at the University of Southern California, the Harvard Business School, and the Courant Institute at New York University. His professional career included positions at JP Morgan, Bankers Trust, and Risk Capital, an independent risk advisory firm that was sold to Towers Perrin in 2006. Currently, Shimko sits on the board of trustees of the Global Association of Risk Professionals (GARP). He acts as an independent financial consultant and continues to teach part-time at the Kellogg School.

Articles by this Author

  • Dangers of Corporate Derivative Transactions
    by David Shimko
    It’s easy for managers to overlook risks. Financial risk managers may ignore nonfinancial risks. Business managers responsible for a particular line item (such as costs) may downplay risks unrelated to their particular line item. Firms often manage their risks compartmentally—for example: the treasury department for foreign exchange and interest rates; the procurement department for commodity purchases; and the insurance department for...
  • Real Options: Opportunity from Risk
    by David Shimko
    The origin of the term “real option” derives from financial options. For example, the right to buy a house for a fixed period of time at a fixed price is a call option,1 except that the underlying asset is a real asset, not a financial asset. Business people and economists discovered that many business processes involve options, and that financial mathematics can be brought to bear to value those options. Some popular examples include:the right...
  • Managing Counterparty Credit Risk
    by David Shimko
    Counterparty risk is the risk to each party of a contract that the counterparty will not live up to its contractual obligations; it is otherwise known as default risk.Counterparty risk relates closely to performance risk. It arises whenever one entity depends on another to honor the terms of a contract. If a parts supplier fails to provide steering wheels to General Motors, GM will be damaged because of its inability to deliver complete cars....
  • Quantifying Corporate Financial Risk
    by David Shimko
    Consider the case of a company that has experienced six months of cash flows this year and wants to forecast the next six months. The usual way to do this is to predict a cash flow growth rate—expected, high, and low—and to base the analysis on these choices. A sample cash flow projection might be illustrated graphically in Figure 1.Figure 1. Deterministic cash flow forecast for last six months In reality, of course, several different cash flow...
  • Integrated Corporate Financial Risk Policy
    by David Shimko
    Risk can be described as the threat of an adverse outcome. Many firms take the benchmark strategy of doing nothing (i.e., investing in Treasury Bills), and measure their risk in absolute terms relative to the strategy of doing nothing. Others measure their risk-taking behavior relative to what might be considered risky benchmarks. Mutual funds, for example, do not focus on the absolute risk of their portfolios; rather, they determine how far...
  • Managing Liquidity Risk in a Financial Institution: The Dangers of Short-Term Liabilities
    by David Shimko
    The assets and liabilities of a firm can be segregated into their short-term and long-term components. Short-term assets include cash, cash equivalents, marketable securities, and marketable inventories—i.e., any asset that can be converted in a short period of time to cash. Long-term assets include assets that cannot easily be converted to cash, such as plant and equipment, reputation, good will, and the present value of future growth...

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