As we’ve seen, finance is primarily the story of risk and its omnipresence. Insurance and risk management (options and diversification) are activities we undertake to deal with risk. Costs of capital and expected returns reflect how we charge for the risks we are asked to bear. Underneath it all, however, is the notion that risk is not something that we like to bear. That’s why we undertake risk management and charge people when we bear risk. If we were indifferent to risk, much of finance would collapse. Insurance and risk management would be unnecessary and we would not charge for risk at
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