tailieunhanh - Conceptual Issues in Financial Risk Analysis: A Review for Practitioners

It would not be exaggerating to argue that financial risk analysis is one of the most important and most difficult components of project appraisal. Such analysis is especially important because the financial viability of a project may be critical for its long-term sustainability and survivability. Its particular difficulty is due to the inherent challenge of pricing risk with market | Conceptual Issues in Financial Risk Analysis A Review for Practitioners Joseph Tham and Lora Sabin February 2001 Lora Sabin is Senior Program Officer at the Center for Business and Government John F. Kennedy School of Government Harvard University where she is involved in developing and managing training programs in various developing countries including Vietnam and China. From 1998-2000 she was the Academic Director of the Fulbright Economics Teaching Program FETP in Vietnam a teaching center funded by the . State Department and managed by Harvard University. Joseph Tham is a Project Associate at the Center for Business and Government John F. Kennedy School of Government Harvard University. Currently he is teaching at the Fulbright Economics Teaching Program in Ho Chi Minh City Vietnam. Before moving to Vietnam he taught in the Program on Investment Appraisal and Management at the Harvard Institute for International Development for many years. He has also served as a consultant on various development projects including working with the government of Indonesia on educational reform in 1995-96. The authors would like to thank the following individuals for their helpful feedback Tran Duyen Dinh Le Thi Thanh Loan Brian Quinn Nguyen Bang Tam Cao Hao Thi Bui Van Nguyen Ngoc Ho Graham Glenday and Baher El-Hifnawi. Responsibility for all remaining errors lies with the authors. Critical comments and constructive feedback may be addressed to the authors by email at lora_sabin@ and ThamJx@. Conceptual Issues in Financial Risk Analysis A Review for Practitioners Abstract This paper presents a critical review of the conceptual issues involved in accounting for financial risk in project appraisal. It begins by examining three of the main approaches to assessing risk the use of the probability distributions of project outcomes such as the NPV the use of a single risk-adjusted discount rate for the life of the project and the use of certainty .