There are two approaches to risk:
Casual Approach to risk
due to incomplete information; you do not yet know the future state of the world that you will be living in.
Results oriented approach to risk
the actual results of your choices deviate from your expectations (or your goals)
Terminology
Peril
Hazard
Peril is the cause or loss
Hazard is a condition which increases or creates the probability of loss
physical hazard (defective wiring in the house)
moral hazard (negligent)
morale hazard (intentional)
Risk in Business
What does Risk in economics and Investment risks in real estate mean?
On what does a professional investor focus an what changes might occur for him when investing?
What are possible outturns of Net cash flows in the future of an investment?
Theoretic Relevance of Risks
Unsystematic and systematic risks
Unsystematic risks:
risks that can be diversified away, by investing in different assets that do not perfectly correlate. Portfolio effect (Risikostreuung)
Systematic risk (market risk):
cannot be diversified away, all investment are affected.
How to manage a risk?
Analyzing of the risk
Identification and classification of risk
Measurement of risks (quantification)
Evaluation of risks
Handling of risks
passive by risk retention
active by avoiding, mitigating, diversifying, tranferring, sharing, hedging…
Risk controlling
visualize the Cash flow Real Estate Investments
What are the properties whereby risks are emanating from?
the object
the location
the market
nation state (in which the property is located in)
Which types of categories of perils do exist in real estate business?
higher expenditures
lower revenues
inability to take possession of payments
home currency value of payment received in local currencies depreciates
Definition of Country Risk
Business transactions across international borders carry additional risk not present in domestic transactions.
Where do sovereign risk and political risk emanate from?
Actions of national governments
…, which interfere with or prevent business transactions, change of terms of agreements or cause confiscication of foreign owned business property
Where do environmental risks occur from?
They stem from adverse changes in the business environment of a country.
What are Country Risk Hazards?
Natural Risk
Political and social risk
macroeconomic risk
microeconomic risk
demographic risk
Contagion (Ansteckung)
Last changeda year ago
