Risk Management - beyond Risk Analysis

Most portfolio models target the risk analysis problem - that is, optimize a set of products or contracts and evaluate the risk associated to the optimum solution. This paper proposes a novel concept for the optimum portfolio problem: evaluate the optimum solution associated to a desired risk level n other words, risks levels are here taken as constraints to be obeyed, not consequences of a decision. The resulting non-linear, integer problem is solved by an efficient framework, based on the real-options concept, minimizing costs and maximizing flexibility. A case study with a real contract portfolio (ranging from months to several years ahead) illustrates the model potential.