The book opens with a question on the importance of risk management, "Why risk management?" and goes on to quantify financial risks and their optimal management to enhance the firm's competitive advantage. Derivatives are now increasingly being used to deflect financial risks, and to take advantage of growth opportunities, the managers have to adopt suitable derivative intervention to facilitate the firm's growth sustainability. It cites Merck's example, which devised five steps: to understand the distribution of exchange rates; to estimate the impact of adverse exchange rate movements on the strategic plan; to decide whether to hedge, depending on external and internal considerations; to choose the appropriate financial instruments; and to determine how much to hedge. The Microsoft example highlights the company's approach to use only derivatives that it can price and understand. The risk management irrelevance proposition decrees the risk types to be diversifiable, systematic and risks valued by investors differently from what the CAPM would predict. The book also shows that, in perfect financial markets, hedging does not affect firm value, whether hedging systematic and unsystematic risks through financial instruments. When the investors have preferences for some type of risks, hedging becomes irrelevant. Insurance companies hedge their catastrophic exposures by reinsuring themselves. In 1996, Berkshire Hathaway sold reinsurance to California Earthquake Authority to the tune of $1.05 bn insured for four years. The reinsurance industry suffers from the information asymmetries and agency costs in the investment industry. Risk management starts with specific risk measures and as aided by VaR and CaR. While the company implements new projects at the time of planning the enhancement of firm's value, they bear the cost of bearing. Derivatives are designed to create cash flows and to lower the transaction costs in comparison to other risk management tools.

The key to pricing forward contracts is that they can be replicated by buying the underlying assets and financing the purchase on contract maturity. These forward prices rest heavily on the interest rate of the finance issue, the storing costs and the holding benefits. The risk factors measure the exposures (risk measures) volatility, CaR and VaR. Perfect hedge is feasible when the risk measure exposure is zero.