A New Model of Risk Assessment Presented by Alessandro Nova

A New Model of Risk Assessment Presented by Alessandro Nova


The paradigm in business risk assessment is radically shifting from deterministic models to richer and more complex probabilistic models. “This is an epochal change”, says Alessandro Nova, professor of Corporate Finance. In April 2019, he presented together with Maurizio Poli a probabilistic assessment model for business plans at #MINE, the knowledge sharing event of SDA Bocconi School of Management. The model is based on a dataset of 60,000 companies over 6 years. It can verify the degree of reliability of the assumptions underlying a business plan and the degree of risk faced by lenders through the Monte Carlo simulation, which enables estimations of unknown parameters by means of stochastic variables.
“Unlike existing models, it allows us to estimate not only single variables, but a perfectly congruent system of variables”, professor Nova says. “It allows us to reconstruct the relationships between the distributions of variables and the distributions of ‘downstream’ variables, through a cascading process. This is an extremely effective model in long-term simulations. Being perfectly congruent, it does not just evaluate the reliability of a business plan, but it is able to identify critical variables”. The probabilistic model is a useful tool for small and medium sized enterprises, which in Italy have a low bent for strategic planning, and even more so for financial investors and private equity funds interested in determining the reasonableness of business hypotheses. “Banks could use it too. The new reporting standard IFRS 9 requires the business plan assessment. Many banks do not have the necessary know-how to do so. This model will help them to readily verify the reliability of business plans and to determine the default probability and the analytical measure of loss”.

‚ÄčRead more about this topic:
Massimo Marinacci. Understanding Risk in Companies and Our Lives
The Real Trouble Starts When We Think We Can Calculate Everything
Corporate Governance Is not Safe from Black Swans
A Bridge Where Decision Theory Meets Risk Analysis
Policy Makers React to Ambiguity Like Other Humans Do
No Economic System Is Safe. Shocks Travel Quickly and Unexpectedly
When International Trade Increases the Chance of Conflict
How to Make Your Non-performing Loans Harmless
New Sanitation System Can Half Healthcare Associated Infections and Reduce Related Costs by 75%

by Claudio Todesco


All News
  • Bocconi's School of Law Joins the American Society of Comparative Law

    The association, founded in 1951, publishes the prestigious American Journal of Comparative Law  

  • Saving the Oceans from the Land: The Role of Businesses

    Two thirds of Mediterranean businesses are unaware of their impact on marine sustainability or are inactive in mitigation. But there is hope, thanks to the 34% of companies defined as sustainability leaders, according to a Report for the One Ocean Foundation by researchers from SDA Bocconi, McKinsey, and CSIC  


  November 2019  
Mon Tue Wed Thu Fri Sat Sun
        1 2 3
4 5 6 7 8 9 10
11 12 13 14 15 16 17
18 19 20 21 22 23 24
25 26 27 28 29 30  


All Seminars
  • Bank Transparency and Deposit Flows

    Itay Goldstein, Wharton University of Pennsylvania

    Meeting Room 2.e4.sr03 - Via Roentgen, 1

  • Bayesian Auctions with Efficient Queries
    Economic Theory, Decision Theory and Experimental Economics

    Jing Chen (Stony Brook University) Paper

    Seminar Room 3.e4.sr03 - Via Roentgen 1