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Journal articles on the topic 'Risk analysis. Hedging (Finance)'

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Published: 4 June 2021

Last updated: 1 February 2022

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1

Shanker, Latha. "Margin Requirements and Hedging Effectiveness: An Analysis in a Risk-Return Framework." Journal of Accounting, Auditing & Finance 7, no. 3 (1992): 379–93. http://dx.doi.org/10.1177/0148558x9200700311.

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The wave of innovation that swept the field of finance in the last fifteen years has resulted in the creation of different instruments that could serve effectively as substitutes in performing different functions. One important function, that of hedging risk, may be performed by futures and options. The regulations of the markets in which these instruments trade are important determinants of the competitiveness of the different substitutes. One such important regulation is that of the margin requirement of futures and options markets. This paper studies the effect of an increase in the margin

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D’Amato, Valeria, Mariarosaria Coppola, Susanna Levantesi, Massimiliano Menzietti, and Maria Russolillo. "A longevity basis risk analysis in a joint FDM framework." Journal of Risk Finance 18, no. 1 (2017): 55–75. http://dx.doi.org/10.1108/jrf-03-2016-0030.

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Purpose The improvements of longevity are intensifying the need for capital markets to be used to manage and transfer the risk through longevity-linked securities. Nevertheless, the difference between the reference population of the hedging instrument and the population of members of a pension plan, or the beneficiaries of an annuity portfolio, determines a significant heterogeneity causing the so-called basis risk. In particular, it is shown that if insurers use financial instruments based on national indices to hedge longevity risk, this hedge can become imperfect. For this reason, it is fun

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Taušer, J., and R. Čajka. "Hedging techniques in commodity risk management." Agricultural Economics (Zemědělská ekonomika) 60, No. 4 (2014): 174–82. http://dx.doi.org/10.17221/120/2013-agricecon.

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The article focuses on selected aspects of risk management in agricultural business with the aim to discuss and compare different hedging methods which are relevant for managing the commodity risks associated with agricultural production. The article provides a broader context for understanding the risks and possible responses to it and analyses four basic hedging strategies &ndash; commodity futures, forward contracts, options and option strategies. The substance, advantages and disadvantages of each hedging technique are pointed out and compared to each other with the conclusion that the

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Chong, Lee-Lee, Xiao-Jun Chang, and Siow-Hooi Tan. "Determinants of corporate foreign exchange risk hedging." Managerial Finance 40, no. 2 (2014): 176–88. http://dx.doi.org/10.1108/mf-02-2013-0041.

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Purpose – The purpose of this study is to delineate the factors influencing the use of financial derivatives by non-financial firms in managing their exchange rate exposure. In total, 219 non-financial firms are surveyed in regard to their financial hedging decision. Design/methodology/approach – This study is conducted via a survey and the questionnaires were sent to the treasurers and financial controller of the firms. Descriptive analysis is employed to assess the profiles of the respondents. Then, factor analysis is carried out to determine the factors influencing the use of financial deri

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Zhu, Wenjun, Ken Seng Tan, Lysa Porth, and Chou-Wen Wang. "SPATIAL DEPENDENCE AND AGGREGATION IN WEATHER RISK HEDGING: A LÉVY SUBORDINATED HIERARCHICAL ARCHIMEDEAN COPULAS (LSHAC) APPROACH." ASTIN Bulletin 48, no. 02 (2018): 779–815. http://dx.doi.org/10.1017/asb.2018.6.

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AbstractAdverse weather-related risk is a main source of crop production loss and a big concern for agricultural insurers and reinsurers. In response, weather risk hedging may be valuable, however, due to basis risk it has been largely unsuccessful to date. This research proposes the Lévy subordinated hierarchical Archimedean copula model in modelling the spatial dependence of weather risk to reduce basis risk. The analysis shows that the Lévy subordinated hierarchical Archimedean copula model can improve the hedging performance through more accurate modelling of the dependence structure of we

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LIU, WEN-QIONG, and WEN-LI HUANG. "HEDGING OF SYNTHETIC CDO TRANCHES WITH SPREAD AND DEFAULT RISK BASED ON A COMBINED FORECASTING APPROACH." International Journal of Theoretical and Applied Finance 22, no. 02 (2019): 1850057. http://dx.doi.org/10.1142/s0219024918500577.

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Hedging of credit derivatives, especially the Collateralized Debt Obligations (CDOs), is the prerequisite of risk management in financial market. Since both spread risk and default risk exist, the models in existing literature resort to the incomplete-market theory to derive the hedging strategies. From another point of view, the construction of hedging strategies of CDO might be regarded as the process of forecasting the changes in value of CDO by the changes in value of hedging instruments. Based on this idea, this paper proposes an alternative hedging approach via the combined forecasting a

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Ankirchner, Stefan, Peter Kratz, and Thomas Kruse. "Hedging Forward Positions: Basis Risk Versus Liquidity Costs." SIAM Journal on Financial Mathematics 4, no. 1 (2013): 668–96. http://dx.doi.org/10.1137/130907045.

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Ceci, Claudia, Katia Colaneri, Rüdiger Frey, and Verena Köck. "Value Adjustments and Dynamic Hedging of Reinsurance Counterparty Risk." SIAM Journal on Financial Mathematics 11, no. 3 (2020): 788–814. http://dx.doi.org/10.1137/19m1283045.

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Ranganathan, Thiagu, and Usha Ananthakumar. "Does hedging in futures market benefit Indian farmers?" Studies in Economics and Finance 31, no. 3 (2014): 291–308. http://dx.doi.org/10.1108/sef-12-2012-0143.

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Purpose – The purpose of this paper is to perform an analysis of potential benefits from usage of the futures markets for the farmers. The national commodity exchanges were established in India in the year 2003-2004. Though there has been a spectacular growth in trading volumes in these exchanges, participation of farmers in these markets has been very low. Efforts are being made to increase the awareness and participation of farmers in these markets. As such efforts are being made, it is critical to analyse the potential benefits from usage of the futures markets for the farmers. Our study pe

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Engle, Robert F., Stefano Giglio, Bryan Kelly, Heebum Lee, and Johannes Stroebel. "Hedging Climate Change News." Review of Financial Studies 33, no. 3 (2020): 1184–216. http://dx.doi.org/10.1093/rfs/hhz072.

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Abstract We propose and implement a procedure to dynamically hedge climate change risk. We extract innovations from climate news series that we construct through textual analysis of newspapers. We then use a mimicking portfolio approach to build climate change hedge portfolios. We discipline the exercise by using third-party ESG scores of firms to model their climate risk exposures. We show that this approach yields parsimonious and industry-balanced portfolios that perform well in hedging innovations in climate news both in sample and out of sample. We discuss multiple directions for future r

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Hoang, Nam, and Terrance Grieb. "Hedging positions in US wheat markets: a disaggregated data analysis." Studies in Economics and Finance 37, no. 3 (2020): 429–55. http://dx.doi.org/10.1108/sef-08-2019-0329.

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Purpose This study aims to spot wheat data and disaggregated commitment of trader data for CME traded wheat futures to examine the effect of exogenous shocks for hedging positions of Producers and Swap Dealers on cash-futures basis and excess futures returns. Design/methodology/approach A Bayesian vector autoregression (BVAR) methodology is used to capture volatility transfer effects. Findings Evidence is presented that institutional short hedging positions play a major role in the pricing of asymmetric information held by Swap Dealers into the basis. The results also indicate that producer he

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Lin, Ling, Zhongbao Zhou, Qing Liu, and Yong Jiang. "Risk transmission between natural gas market and stock markets: portfolio and hedging strategy analysis." Finance Research Letters 29 (June 2019): 245–54. http://dx.doi.org/10.1016/j.frl.2018.08.011.

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Abergel, Frédéric, and Nicolas Millot. "Nonquadratic Local Risk-Minimization for Hedging Contingent Claims in Incomplete Markets." SIAM Journal on Financial Mathematics 2, no. 1 (2011): 342–56. http://dx.doi.org/10.1137/100803079.

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Dzingirai, Canicio, and Nixon S. Chekenya. "Longevity swaps for longevity risk management in life insurance products." Journal of Risk Finance 21, no. 3 (2020): 253–69. http://dx.doi.org/10.1108/jrf-05-2019-0085.

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Purpose The life insurance industry has been exposed to high levels of longevity risk born from the mismatch between realized mortality trends and anticipated forecast. Annuity providers are exposed to extended periods of annuity payments. There are no immediate instruments in the market to counter the risk directly. This paper aims to develop appropriate instruments for hedging longevity risk and providing an insight on how existing products can be tailor-made to effectively immunize portfolios consisting of life insurance using a cointegration vector error correction model with regime-switch

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Esat Topaloglu, Emre, and Turhan Korkmaz. "The relationship between derivative instruments and systematic risk: a study on banks trading on BIST." Banks and Bank Systems 14, no. 2 (2019): 152–63. http://dx.doi.org/10.21511/bbs.14(2).2019.13.

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This study is aimed to analyze the relationship between the use of derivative financial instruments for speculative and hedging purposes and systematic risk. The effect of the use of derivatives by seven banks trading on Borsa Istanbul during the period of June 2007 – December 2017 on systematic risk was studied using panel cointegration, causality and regression analyses. Banking sector was examined within the scope of the study, since the level of use of derivatives is high in this sector. It was identified in the study that there is a long-run cointegration relationship between the use of d

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Wang, Kuan-Min, and Yuan-Ming Lee. "Hedging exchange rate risk in the gold market: A panel data analysis." Journal of Multinational Financial Management 35 (June 2016): 1–23. http://dx.doi.org/10.1016/j.mulfin.2016.02.001.

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17

Hecht, Andreas. "How do firms manage their interest rate exposure?" Journal of Risk Finance 20, no. 5 (2019): 501–19. http://dx.doi.org/10.1108/jrf-02-2019-0037.

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Purpose This paper aims to identify how non-financial firms manage their interest rate (IR) exposure. IR risk is complex, as it comprises the unequal cash flow and fair value risk. The paper is able to separate both risk types and investigate empirically how the exposure is composed and managed, and whether firms increase or decrease their exposure with derivative transactions. Design/methodology/approach The paper examines an unexplored regulatory environment that contains publicly reported IR exposure data on the firms’ exposures before and after hedging. The data were complemented by indica

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ESIPOV, SERGEI, and IGOR VAYSBURD. "ON THE PROFIT AND LOSS DISTRIBUTION OF DYNAMIC HEDGING STRATEGIES." International Journal of Theoretical and Applied Finance 02, no. 02 (1999): 131–52. http://dx.doi.org/10.1142/s0219024999000108.

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Hedging a derivative security with non-risk-neutral number of shares leads to portfolio profit or loss. Unlike in the Black–Scholes world, the net present value of all future cash flows till maturity is no longer deterministic, and basis risk may be present at any time. The key object of our analysis is probability distribution of future P & L conditioned on the present value of the underlying. We consider time dynamics of this probability distribution for an arbitrary hedging strategy. We assume log-normal process for the value of the underlying asset and use convolution formula to relate

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LUDKOVSKI, MICHAEL, and QUNYING SHEN. "EUROPEAN OPTION PRICING WITH LIQUIDITY SHOCKS." International Journal of Theoretical and Applied Finance 16, no. 07 (2013): 1350043. http://dx.doi.org/10.1142/s021902491350043x.

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We study the valuation and hedging problem of European options in a market subject to liquidity shocks. Working within a Markovian regime-switching setting, we model illiquidity as the inability to trade. To isolate the impact of such liquidity constraints, we focus on the case where the market is completely static in the illiquid regime. We then consider derivative pricing using either equivalent martingale measures or exponential indifference mechanisms. Our main results concern the analysis of the semi-linear coupled Hamilton–Jacobi–Bellman (HJB) equation satisfied by the indifference price

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Zhou, Rui, Johnny Siu-Hang Li, and Jeffrey Pai. "Hedging crop yield with exchange-traded weather derivatives." Agricultural Finance Review 76, no. 1 (2016): 172–86. http://dx.doi.org/10.1108/afr-11-2015-0045.

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Purpose – The application of weather derivatives in hedging crop yield risk is gaining more interest. However, the further development of weather derivatives – particularly exchange-traded – in the agricultural sector has been impeded by concerns over their hedging performance. The purpose of this paper is to develop a new framework to derive the optimal hedging strategy and evaluate hedging effectiveness. Design/methodology/approach – This framework incorporates a stochastic temperature model, a crop yield model, a risk-neutral pricing method and a profit optimization procedure. Based on a la

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Singh, Devi. "Managing Currency Risk." Vision: The Journal of Business Perspective 2, no. 2 (1998): 6–10. http://dx.doi.org/10.1177/09722629x98002002002.

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With market frontiers expanding and financial price volatility and risk going up, management of foreign exchange risk assumes importance. The implications of increased involvement of Indian companies in international trade and finance require managers to measure the foreign exchange exposure and manage it to maximise profitability, net cash flow and the market value of the firm. An analysis of the foreign risk management practices of some Indian companies reveals that they neither have a model for forecasting foreign exchange rate movement nor a detailed mechanism to evaluate the effectiveness

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Taranto, Aldo, and Shahjahan Khan. "Bi-directional grid absorption barrier constrained stochastic processes with applications in finance & investment." Risk Governance and Control: Financial Markets and Institutions 10, no. 3 (2020): 20–33. http://dx.doi.org/10.22495/rgcv10i3p2.

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Whilst the gambler’s ruin problem (GRP) is based on martingales and the established probability theory proves that the GRP is a doomed strategy, this research details how the semimartingale framework is required for the grid trading problem (GTP) of financial markets, especially foreign exchange (FX) markets. As banks and financial institutions have the requirement to hedge their FX exposure, the GTP can help provide a framework for greater automation of the hedging process and help forecast which hedge scenarios to avoid. Two theorems are adapted from GRP to GTP and prove that grid trading, w

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23

Pradhan, Kailash. "The Hedging Effectiveness of Stock Index Futures: Evidence for the S&P CNX Nifty Index Traded in India." South East European Journal of Economics and Business 6, no. 1 (2011): 111–23. http://dx.doi.org/10.2478/v10033-011-0010-2.

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The Hedging Effectiveness of Stock Index Futures: Evidence for the S&P CNX Nifty Index Traded in IndiaThis study evaluates optimal hedge ratios and the hedging effectiveness of stock index futures. The optimal hedge ratios are estimated from the ordinary least square (OLS) regression model, the vector autoregression model (VAR), the vector error correction model (VECM) and multivariate generalized autoregressive conditional heteroskedasticity (M-GARCH) models such as VAR-GARCH and VEC-GARCH using the S&P CNX Nifty index and its futures index. Hedging effectiveness is measured in terms

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Lin Lee, Chyi. "The inflation-hedging characteristics of Malaysian residential property." International Journal of Housing Markets and Analysis 7, no. 1 (2014): 61–75. http://dx.doi.org/10.1108/ijhma-10-2012-0053.

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Purpose – This study aims to extend the current literature by examining the inflation-hedging effectiveness of Malaysian residential property in the short run and long run. Malaysia is an emerging market and has some unique characteristics. Therefore, a dedicated study in this market is critical. Design/methodology/approach – The analysis of this study involves two stages. The first stage is to estimate the inflation-hedging ability of Malaysian residential property in the short run. The Fama and Schwert model was employed. Thereafter, the long-run inflation-hedging effectiveness was assessed

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Filipozzi, Fabio, and Kersti Harkmann. "Optimal currency hedge and the carry trade." Review of Accounting and Finance 19, no. 3 (2020): 411–27. http://dx.doi.org/10.1108/raf-10-2018-0219.

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Purpose This paper aims to investigate the efficiency of different hedging strategies for an investor holding a portfolio of foreign currency bonds. Design/methodology/approach The simplest strategies of no hedge and fully hedged are compared with the more sophisticated strategies of the ordinary least squares (OLS) approach and the optimal hedge ratios found by the dynamic conditional correlation-generalised autoregressive conditional heteroskedasticity approach. Findings The sophisticated hedging strategies are found to be superior to the simple strategies because they lower the portfolio ri

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Wang, Fang, and Xu Zheng. "Performance analysis of investing in Chinese oil paintings based on a hedonic regression model of price index." China Finance Review International 7, no. 3 (2017): 323–42. http://dx.doi.org/10.1108/cfri-03-2016-0009.

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Purpose The purpose of this paper is to construct a price index for Chinese oil paintings and analyze the financial performance of investing in Chinese oil paintings and its potential for portfolio diversification in Chinese financial markets. Design/methodology/approach A hedonic regression model is applied to construct a semiannual price index for Chinese oil paintings from 2000 to 2014. The CAPM model, downside β and standard portfolio optimization are used for analyzing portfolio diversification. Findings The hedonic regression shows that the majority of hedonic variables, such as dimensio

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Jin, Zhuo, Rebecca Stockbridge, and George Yin. "Some Recent Progress on Numerical Methods for Controlled Regime-Switching Models with Applications to Insurance and Risk Management." Computational Methods in Applied Mathematics 15, no. 3 (2015): 331–51. http://dx.doi.org/10.1515/cmam-2015-0015.

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AbstractThis paper provides a survey on several numerical approximation schemes for stochastic control problems that arise from actuarial science and finance. The problems to be considered include dividend optimization, reinsurance game, and quantile hedging for guaranteed minimum death benefits. To better describe the complicated financial markets and their inherent uncertainty and randomness, the so-called regime-switching models are adopted. Such models are more realistic and versatile, however, far more complicated to handle. Due to the complexity of the construction, the regime-switching

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Doms, Juliane, Norbert Hirschauer, Michael Marz, and Falk Boettcher. "Is the hedging efficiency of weather index insurance overrated? A farm-level analysis in regions with moderate natural conditions in Germany." Agricultural Finance Review 78, no. 3 (2018): 290–311. http://dx.doi.org/10.1108/afr-07-2017-0059.

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Purpose The purpose of this paper is to analyze the hedging efficiency (HE) of weather index insurances (WII) based on a whole-farm approach. The aim is to identify how different types of WII affect the economic performance risk of real farms in the light of the heterogeneity of farm operations and natural conditions. Design/methodology/approach Using historic simulation, the HE of various hedging strategies is computed for 20 farms in regions with moderate natural conditions. A priori defined “standardized” WII and hedge ratios as well as ex post “optimized” strategies are analyzed. The latte

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Aman Chugh, Renuka Sharma, and Kiran Mehta. "Forex Risk Management by SMEs and Unlisted Non-financial Firms: A Literature Survey." Journal of Technology Management for Growing Economies 8, no. 2 (2017): 145–66. http://dx.doi.org/10.15415/jtmge.2017.82002.

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In the recent globalised financial markets, financial markets are more integrated which leads to more foreign exchange risk for firms. In such scenario currency derivatives are top most operational hedging strategy to manage foreign exchange risk. This scenario is different in developed and emerging markets as turnover of derivatives is growing swiftly in emerging markets and uses of currency derivatives is common but lower in comparison to the interest rate derivatives. In emerging markets (Hong Kong, Singapore and Brazil) use of currency derivatives is fifty per cent of total derivative trad

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Özen, Selin, and Şule Şahin. "A Two-Population Mortality Model to Assess Longevity Basis Risk." Risks 9, no. 2 (2021): 44. http://dx.doi.org/10.3390/risks9020044.

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Index-based hedging solutions are used to transfer the longevity risk to the capital markets. However, mismatches between the liability of the hedger and the hedging instrument cause longevity basis risk. Therefore, an appropriate two-population model to measure and assess longevity basis risk is required. In this paper, we aim to construct a two-population mortality model to provide an effective hedge against the basis risk. The reference population is modelled by using the Lee–Carter model with the renewal process and exponential jumps, and the dynamics of the book population are specified.

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Nichita, Mirela. "Enhancing quality of information through risk reporting in financial statements." Proceedings of the International Conference on Business Excellence 12, no. 1 (2018): 671–82. http://dx.doi.org/10.2478/picbe-2018-0060.

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Abstract When we bring in discussion risk, we think about danger, loss or other unfavorable consequences. In accounting and in finance area, the concept of risk is related to a wide range of terms, such as: cost - volume analysis, decision trees, discounted cash flows, capital assets pricing models, and the newly hedging concept. Effective risk management relates to risk assessment; risk evaluation; risk treatment; and risk reporting. Risk management highlights the actions that the entity takes in order to be prepared for any negative event. The objective of risk management is not to prevent o

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Kawakami, Kei. "Welfare Consequences of Information Aggregation and Optimal Market Size." American Economic Journal: Microeconomics 9, no. 4 (2017): 303–23. http://dx.doi.org/10.1257/mic.20160010.

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We analyze the welfare implications of information aggregation in a trading model where traders have both idiosyncratic endowment risk and asymmetric information about security payoffs. The optimal market size balances two forces: (i) the risk-sharing role of markets, which creates a positive externality amongst traders, against (ii) the information-aggregation role of prices, which leads to prices that are more correlated with security payoffs, thereby undermining the hedging function of markets. Our analysis indicates that a market with infinitely many traders may not be the right welfare be

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Mohanty, Sunil K., and Mohan Nandha. "Oil Shocks and Equity Returns: An Empirical Analysis of the US Transportation Sector." Review of Pacific Basin Financial Markets and Policies 14, no. 01 (2011): 101–28. http://dx.doi.org/10.1142/s0219091511002159.

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The main purpose of this paper is to investigate the relation between oil price movements and stock returns in US transportation companies. We estimate oil price risk exposures of the US oil transport sector at the firm level as well as at the industry level over November 1999 to February 2008 period using the Fama–French–Carhart's (1997) four-factor asset pricing model augmented with oil price and interest rate factors. Overall, the results of our study suggest that oil price exposures of firms in the US transportation sector vary across firms and over time. The varying effects of oil shocks

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Sabkha, Saker, Christian de Peretti, and Dorra Mezzez Hmaied. "International risk spillover in sovereign credit markets: an empirical analysis." Managerial Finance 45, no. 8 (2019): 1020–40. http://dx.doi.org/10.1108/mf-11-2017-0490.

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Purpose The purpose of this paper is to study the volatility spillover among 33 worldwide sovereign Credit Default Swap (CDS) markets and their underlying bond markets. Design/methodology/approach In contrast to prior studies, the authors incorporate heteroscedasticity, asymmetric leverage effects and long-memory features of sovereign credit spreads simultaneously through a bivariate FIEGARCH model and a Bayesian cointegrated vector autoregressive model. Findings Similar to the literature, the findings confirm that strong evidence of credit risk spillover between credit markets is accentuated

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Daraz Khan, Muhammad Daraz Khan. "Sharīʿah Evaluation of Financial Derivatives and Developing Sharīʿah Compliant Hedging Instruments". Islamic Banking and Finance Review 7 (31 грудня 2020): 1. http://dx.doi.org/10.32350/ibfr/2020/0700/451.

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The use of financial derivatives have been controversial in Islamic Finance. However, the commonly held openion is such derivatives are not Sharīʿah compliant, so should not be used in Islamic Finance. The use of Islamic derivatives in some jurisdiction and not in others on the one hand and the lesser clarity regarding their Sharīʿah basis on the other hand have created uncertainity and thus hindrance for the Islamic financial institutions in properly managing the associated risks. This study is an effort to address the issue and analyze the forwards, futures, options and swaps contracts, from

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Vahdatmanesh, Mohammad, and Afshin Firouzi. "Price risk management in BOT railroad construction projects using financial derivatives." Journal of Financial Management of Property and Construction 23, no. 3 (2018): 349–62. http://dx.doi.org/10.1108/jfmpc-04-2018-0021.

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Purpose Railroad transit infrastructures are amongst major capital-intensive projects worldwide, which impose significant risks to the contractors of build-operate-transfer projects because of the fluctuations in steel price fluctuation. The purpose of this paper is to introduce a methodology for hedging steel price risk using financial derivatives. Design/methodology/approach Cox–Ross valuation lattice has been used as an option valuation model for determining option’s price for the construction companies involved in fixed-price railroad projects. A sensitivity analysis has been conducted usi

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Palmer, Richard J., and Thomas V. Schwarz. "Improving the FASB's Requirements for Off-Balance-Sheet Market Risk Disclosures." Journal of Accounting, Auditing & Finance 10, no. 3 (1995): 521–40. http://dx.doi.org/10.1177/0148558x9501000306.

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This paper discusses the requirements and limitations associated with SFAS No. 105 market risk disclosures, empirically examines the current implementation of SFAS No. 105 in the financial disclosures of financial institutions, and proposes improvements to the market risk disclosures presently required by the FASB. The results of the empirical analysis of 35 large U.S. financial institutions show that (1) many firms indicated a concern that statement users are not able to clearly distinguish between required contract dollar amount disclosures and actual risks; (2) although most firms use instr

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Frey, Rüdiger, and Daniel Sommer. "A systematic approach to pricing and hedging international derivatives with interest rate risk: analysis of international derivatives under stochastic interest rates." Applied Mathematical Finance 3, no. 4 (1996): 295–317. http://dx.doi.org/10.1080/13504869600000014.

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Lin, X. Sheldon, and Shuai Yang. "EFFICIENT DYNAMIC HEDGING FOR LARGE VARIABLE ANNUITY PORTFOLIOS WITH MULTIPLE UNDERLYING ASSETS." ASTIN Bulletin 50, no. 3 (2020): 913–57. http://dx.doi.org/10.1017/asb.2020.26.

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AbstractA variable annuity (VA) is an equity-linked annuity that provides investment guarantees to its policyholder and its contributions are normally invested in multiple underlying assets (e.g., mutual funds), which exposes VA liability to significant market risks. Hedging the market risks is therefore crucial in risk managing a VA portfolio as the VA guarantees are long-dated liabilities that may span decades. In order to hedge the VA liability, the issuing insurance company would need to construct a hedging portfolio consisting of the underlying assets whose positions are often determined

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Wang, Shin-Yun, and Shih-Kuei Lin. "The pricing and hedging of structured notes with systematic jump risk: An analysis of the USD knock-out reversed swap." International Review of Economics & Finance 19, no. 1 (2010): 106–18. http://dx.doi.org/10.1016/j.iref.2009.08.004.

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Balson, William E., and Gordon Rausser. "Pretrade and risk-based clearing." Journal of Financial Economic Policy 8, no. 2 (2016): 228–47. http://dx.doi.org/10.1108/jfep-10-2015-0059.

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Purpose Risk-based clearing has been proposed by Rausser et al. (2010) for over-the-counter (OTC) derivatives. This paper aims to illustrate the application of risk-based margins to a case study of the mortgage-backed securities derivative portfolio of the American International Group (AIG) during the period 2005-2008. There exists sufficient publicly available information to examine AIG’s derivative portfolio and how that portfolio would depend on conjectural changes in margin requirements imposed on its OTC derivative positions. Generally, such data on OTC derivative portfolio positions are

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Bejol, Philipp, and Nicola Livingstone. "Revisiting currency swaps: hedging real estate investments in global city markets." Journal of Property Investment & Finance 36, no. 2 (2018): 191–209. http://dx.doi.org/10.1108/jpif-04-2017-0026.

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Purpose The purpose of this paper is to re-examine currency swaps as an effective hedging technique for individual asset performance in today’s global real estate market, by considering hypothetical prime office investments across six different cities and five currency pairs. The perspective of a risk-averse, high net worth, non-institutional, smaller-scale Swiss investor is paired with investors from five additional national markets. Design/methodology/approach The study examines currency swaps in key office markets across three continents (Frankfurt, London, New York, Sydney, Warsaw and Zuri

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Williams, Owen. "Foreign currency exposure within country exchange traded funds." Studies in Economics and Finance 33, no. 2 (2016): 222–43. http://dx.doi.org/10.1108/sef-10-2014-0196.

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Purpose The purpose of this paper is to consider the implicit effect of the underlying foreign currency exposure on the performance characteristics of country exchange traded funds. Design/methodology/approach To arrive at an overall estimation of the exchange-traded fund (ETF)’s tracking error, the mean of the three measures of tracking error was calculated for both the hedged (r_LC) and unhedged (r_NAV) return series. Since tracking error does not capture all the risk inherent in a country index fund, the study extends the analysis using the Sortino and Modified Sharpe ratios. Findings The d

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Lecomte, Patrick. "Testing alternative models of property derivatives: the case of the City of London." Journal of Property Investment & Finance 32, no. 2 (2014): 107–53. http://dx.doi.org/10.1108/jpif-11-2013-0064.

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Purpose – The paper aims to conduct an empirical study of three models of property derivatives: index-based derivatives, factor hedges, and combinative hedges based on index and factors. The objective is to test whether the latter two models introduced by Lecomte dominate the index-based model used for existing property derivatives such as EUREX futures contracts. Design/methodology/approach – Based on investment property database (IPD) historical database covering 224 individual office properties from 1981 to 2007, the study assesses ex ante hedging effectiveness of the three models. Nine sim

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Moloi, Tankiso. "Leading internal and external sources of credit risk in the top South African banks." Risk Governance and Control: Financial Markets and Institutions 4, no. 3 (2014): 51–65. http://dx.doi.org/10.22495/rgcv4i3art6.

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This paper aimed at identifying the leading credit risk indicators in the South African banking context as well as the development of an integrated leading credit risk indicator model. A content analysis was used as a data extraction methodology and structural equation modelling was used as a data analysis methodology. The results obtained indicated that utilising the structural equation modelling, gross savings, and prime overdraft rates, number of judgements, business insolvencies and unemployment rates were formulated as leading economic and market (external) indicators of credit risk in th

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Lahouel, Noureddine, and Slaheddine Hellara. "Improving the option pricing performance of GARCH models in inefficient market." Investment Management and Financial Innovations 17, no. 2 (2020): 14–25. http://dx.doi.org/10.21511/imfi.17(2).2020.02.

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Understanding the relation between option pricing and market efficiency is important. Indeed, emphasizing this relation generates new insights that are appropriate in practice. These insights give a better understanding of the current limitations of the option pricing and hedging methods. This article thus aims to improve the performance of the option pricing approach. To start, the relation between the option pricing methodology and the informational market efficiency was discussed. It is, therefore, useful, before proceeding to apply the standard risk-neutral approach, to check the efficienc

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Tudor, Kerry, Aslihan Spaulding, Kayla D. Roy, and Randy Winter. "An analysis of risk management tools utilized by Illinois farmers." Agricultural Finance Review 74, no. 1 (2014): 69–86. http://dx.doi.org/10.1108/afr-09-2012-0044.

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Purpose – The purpose of this paper is to investigate the relationships among choice of risk management tools, perceived effectiveness of risk management tools, self-reported risk attitude, and farm and farmer characteristics. Design/methodology/approach – A mail survey was used to collect information about utilization of risk management tools, perceived effectiveness of risk management tools, and factors that could influence choice of risk management tools by Illinois farmers. Cluster analysis, one-way ANOVA, χ2 tests of independence, and multinomial logistic regression were utilized to detec

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Wang, Hua, and Junjun Zhu. "The influence of USD/CNY foreign exchange rate, RMB NEER and spatial effects on China’s foreign trade." China Finance Review International 6, no. 3 (2016): 304–18. http://dx.doi.org/10.1108/cfri-09-2014-0067.

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Purpose – The purpose of this paper is to analyze the influence of different forms of RMB foreign exchange rates on Chinese foreign trade. Design/methodology/approach – This paper constructed spatial panel model and Markov Chain Monte Carlo estimation method and collected the data of 25 countries’ (including China) quarterly macroeconomic data from first quarter of 1993 until third quarter of 2013 to conduct the data analysis. Findings – This paper finds that USD/CNY, which is widely used in trade settlement, is more significant in effecting Chinese export. Totally, 1 percent appreciation of C

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Haq, Inzamam Ul, Supat Chupradit, and Chunhui Huo. "Do Green Bonds Act as a Hedge or a Safe Haven against Economic Policy Uncertainty? Evidence from the USA and China." International Journal of Financial Studies 9, no. 3 (2021): 40. http://dx.doi.org/10.3390/ijfs9030040.

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Economic policy uncertainty and particularly COVID-19 has stimulated the need to investigate alternative avenues for policy risk management. In this context, this study examines the dynamic association among economic policy uncertainty, green bonds, clean energy stocks, and global rare earth elements. A dynamic conditional correlation-multivariate generalized autoregressive conditional heteroscedasticity (DCC-MGARCH) model was used to gauge the time-varying co-movements among these indices. The analysis finds that green bonds act more as a hedge than a safe haven against economic policy uncert

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Bodie, Zvi. "Robert C. Merton and the Science of Finance." Annual Review of Financial Economics 11, no. 1 (2019): 1–20. http://dx.doi.org/10.1146/annurev-financial-011019-040506.

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Starting with his 1970 doctoral dissertation and continuing to today, Robert C. Merton has revolutionized the theory and practice of finance. In 1997, Merton shared a Nobel Prize in Economics “for a new method to determine the value of derivatives.” His contributions to the science of finance, however, go far beyond that. In this article I describe Merton's main contributions. They include the following: 1. The introduction of continuous-time stochastic models (the Ito calculus) to the theory of household consumption and investment decisions. Merton's technique of dynamic hedging in continuous

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