Market Risk

El primer capitulo del presente libro muestra la consistencia de los principios financieros mas importantes con la nocion de racionalidad economica “perfecta”, lo cual sugiere que la existencia de consumidores racionales es un postulado “conveniente” (decir que es “correcto” seria muy pretencioso) para el desarrollo adecuado “de la teoria economica”. Para ello, la ecuacion diferencial parcial (EDP) de Black-Scholes-Merton (BSM) que determina el precio de un producto derivado se obtiene bajo diferentes principios financieros tales como: condiciones de no arbitraje, coberturas, el modelo CAPM (Capital Asset Pricing Model), portafolios replicantes y autofinanciables, VPN (valor presente neto), el modelo de Markowitz, etc. Posteriormente, se obtiene exactamente la misma ecuacion de BSM utilizando un consumidor-inversionista maximizador de utilidad sujeto a su restriccion presupuestal, lo que confirma la consistencia de dichos principios financieros con la racionalidad economica. En el s...

This paper focuses on an analysis of the relation between systematic risk and growth opportunities from the real options perspective. Assuming the risk of current and future businesses to be independent from ownership (i.e. from whichever firm invests in them), we deduce that the systematic risk of a firm's equity depends on the weight of growth options on its market value. We test this hypothesis by analysing a sample of 958 European firms over the period 2001-2005. Our findings bear out the impact of growth options on systematic risk and are robust to different splits of the sample into risk groups, thus providing new insights to interpret the findings to emerge from multifactor market models.

The purpose of this dissertation is to study several leading Value-at-Risk (VaR) methodologies and evaluate how they can be used to assess the risk of different sectors of the Brazilian economy with the perspective of a potential investor. VaR is the financial industry’s most widely used risk measure, commonly adopted by banks and governments around the world. There is a great amount of ongoing research on VaR; however, there are few studies that use VaR as a potential tool for small investments. There are also very few studies that analyze VaR estimation of Brazilian companies. This dissertation first reviews VaR methodologies and elects a few among the best performing according to current literature. In a second stage, two experiments are conducted. The first experiment consists of a statistical evaluation of data from the Brazilian stock market during different time ranges so that adequate VaR methodologies may be chosen according to the data. The second experiment benchmarks the...

Basel II and Solvency 2 both use the Value-at-Risk (VaR) as the risk measure to compute the Capital Requirements. In practice, to calibrate the VaR, a normal approximation is often chosen for the unknown distribution of the yearly log returns of financial assets. This is usually justified by the use of the Central Limit Theorem (CLT), when assuming aggregation of independent and identically distributed (iid) observations in the portfolio model. Such a choice of modeling, in particular using light tail distributions, has proven during the crisis of 2008/2009 to be an inadequate approximation when dealing with the presence of extreme returns; as a consequence, it leads to a gross underestimation of the risks. The main objective of our study is to obtain the most accurate evaluations of the aggregated risks distribution and risk measures when working on financial or insurance data under the presence of heavy tail and to provide practical solutions for accurately estimating high quantiles of aggregated risks. We explore a new method, called Normex, to handle this problem numerically as well as theoretically, based on properties of upper order statistics. Normex provides accurate results, only weakly dependent upon the sample size and the tail index. We compare it with existing methods.

Abstract
Addis Ababa city administration is ambitiously working to alleviate the housing
problem of the residents through different housing programs. A significant one is the
Government saving houses or condominium housing program which has already
made possible big villages of many buildings, hosting a large number of families. The
process continued and the government is constructing even bigger housing facilities
in different parts of the city. 
Supplying Electricity for the developments is witnessed to be major challenge to the
city government and the utility company as well. The Government is for seeing
alternative options like Solar PV.  A grid connected Biomass-PV hybrid Energy
system can also be developed to meet the energy demand. 
In designing electrical power generation projects the load and the available
resources are needed to be known. The thesis work studied and developed a load
profile and waste generation potential of the condominium developments. The
energy potential of the available resources has been calculated.
A stand alone Biomass-PV hybrid model is proved to be not feasible given the need
for storage to meet the load which will make the cost of energy very expensive. Thus
an optimized grid connected Biomass-PV hybrid energy system with zero net energy
purchase from the grid which can fully meet the load has been modeled Using
Homer®. The cost of energy with the optimized grid connected model has become $
0.113 /KWh which is in the international acceptable margin.
Generation from Biomass is used to support the base load, and the PV and Grid
supports the peak load. Biomass technologies used to generate electrical energy are
Biogas generator and integrated Gasifier combined cycle generator. The PV system
considered is latitude tilted rooftop fixed.
Grid interfacing and AD and Digester design is not included in the scope of the
project but the major components, the Anaerobic Digester, Gasifier reactor and
Biomass handling facility has been sized .

The large portfolios of traded assets held by many financial institutions have made the measurement of market risk a necessity. In practice, VaR measures are computed for several holding periods and confidence levels. A key issue in implementing VaR and related risk measures is to obtain accurate estimates for the tails of the conditional profit and loss distribution at the relevant horizons. VaR forecasts can be heavily affected by a few influential points, especially when long forecast horizons are considered. Robustness can be enhanced by fitting a generalized Pareto distribution to the tails of the distribution of the residual and sampling tail residuals from this density. However, to ensure a sufficiently large breakdown point for the estimator of the generalized Pareto tails, robust estimation is needed (see Dell 'Aquila, Ronnchetti, 2006). The aim of the paper is to compare selected approaches to computing Value at Risk. We consider classical and robust conditional (GARCH) and unconditional (EVT) semi-nonparametric models where tail events are modeled using the generalized Pareto distribution. We wish to answer the question of whether the robust semi-nonparametric procedure generates more accurate VaRs than the classical approach does.

In the paper we investigate the role played by both production and market risks on farmer's decision to adopt long rotations (over 2 years), considered as innovative cropping systems. We build a multiperiod dynamic farm model (run under GAMS) that arbitrates each year between traditional and innovative rotations. With discrete stochastic programming, the production risk is accounted as an intra-year risk; yearly farming operations are declined according to a decision tree where probabilities are assigned. Subjective yield and cost distributions linked to this decision tree are elicited among a sample of 13 farmers that are experiencing this innovation in South-western France. The price risk is randomly distributed with a given market trend. The crop acreage can be revised according to the market situation. The simulations show that substantive sunk costs are incentive to remain in the long rotation when the farmer is already engaged and when he is supported for this engagement. They also show that both a high risk aversion and a highly positive market trend tend to slow down the conversion towards innovative systems.

We investigate the role played by both production and market risks on farmers' decision to adopt long rotations considered as innovative cropping systems. We build a multi-period dynamic farm model which arbitrates each year between conventional and innovative rotations. With discrete stochastic programming, the production risk is accounted for as an intra-year risk, yearly farming operations being declined according to a decision tree where probabilities are assigned. The simulations for a sample of 13 farmers who are currently experimenting this innovation in south-western France, show that substantive sunk costs act as incentives to remain in the long rotation when the farmer is supported for his engagement. They also show that both a high risk aversion and a highly positive market trend tend to slow down the conversion towards innovative systems.

We examine the risk and return characteristics of publicly traded real estate companies from 14 countries over the period 1990 to 2001. Our data are monthly country‐level commercial real estate indexes constructed by the European Public Real Estate Association (EPRA). We find substantial variation in mean real estate returns and standard deviations across countries. Using various global‐ and country‐level factor models, we find that there is evidence of a strong global market risk component, measured relative to the Morgan Stanley Capital International world index, in most countries. However, even after controlling for the effects of global market risk, an orthogonalized country‐specific market risk factor is highly significant, especially for real estate indexes in Asia–Pacific markets. We find that a country‐specific value risk factor has some explanatory power in addition to the country‐specific market factor, but U.S.‐based market, value and size risk factors do not provide any ...

The expected return on the market is a number frequently required for the solution of many investment and corporate finance problems. However, by comparison with other financial variables, there has been relatively little academic research on estimating this expected return. The current practice for estimating the expected return on the market is to take the historical average of realized excess returns on the market and add, :It to'the current observed inte're~t: rate. While th;i:smodel does explicitly relfect the dependence of the market experience return ,on the interest rate, it does not take into account the effect of changes in the level of risk associated with the market. Three models of equilibrium expected market returns which do reflect this dependence are analyzed in this paper. Estimation procedures are derived which incorporate the prior restriction that equilibrium expected excess returns on the market must be positive. The parameters of the models are estimated using realized return data for the period 1926-1978. The principal conclusions from this exploratory investigation are: ~irst, in estimating models of the expected return on the market, the nonnegativity restriction of the expected excess return should be explicitly included as part of the specification. Second, estimators which use realized return time series should be adjusted for heteroscadasticity.

The paper studies how the risks specific to a nuclear power investment in liberalised markets – regulatory, construction, operation and market risks – can be mitigated or transferred away from the plant investor through different contractual and organisational arrangements. It argues that at least for the first new reactors significant risk transfers onto governments, consumers, and, vendors are likely to be needed to make nuclear power attractive to investors in liberalised markets. These different types of risk allocations will in turn induce different investment financing choices. Four case studies of recent new nuclear projects illustrate the alternative consistent combinations of contractual, organization, and financial arrangements for new nuclear build depending on the industrial organisation, the market position of the company and the institutional environment prevailing in different countries. The most likely financing structure will likely be based on corporate financing o...

Recent developments in Turkish derivatives markets demonstrate the increasing importance of risk management not only for individual banks but also for the entire system. In this context, this study analyzes the counterparty credit risk of OTC derivatives. The analysis is based on a hypothetical portfolio that is characterized by key aspects of the instruments banks hold. Thus, the portfolio consists of vanilla swaps, which dominate banks’ transactions. By simulating market risk factors, we come up with proxy risk exposure figures for the whole banking system. After a proper adjustment, these figures have been compared with the risk weighted assets, which includes credit risk,as well as with the capital. Consequently, we observe that the counterparty credit risk resulting from the use of OTC derivatives is relatively small for the Turkish banking system. Nevertheless, in light of the new regulatory framework introduced by Basel III, the importance of credit and market liquidity risk ...

Secondo quanto previsto dal Comitato di Basilea per la vigilanza bancaria, a partire dalla fine del 1997, o prima se così prescriveranno le rispettive autorità di vigilanza, le banche saranno tenute a misurare e applicare requisiti patrimoniali a fronte dei rischi di mercato, oltre che dei rischi di credito. Il Comitato di Basilea ha proposto una propria - semplificata - metodologia per il calcolo dei rischi di mercato (“metodo standard”), ma ha riconosciuto alle banche la possibilità di utilizzare sistemi di misurazione sviluppati al proprio interno (“modelli interni”). In questo lavoro, dopo aver richiamato le condizioni previste a livello normativo per l’utilizzo dei modelli interni [tra cui la specificazione dei fattori di rischio di mercato, i criteri quantitativi (inclusi i test retrospettivi) e le prove di stress], viene presentato un modello generale in tempo continuo. In quest’ambito vengono determinate le misure di volatilità e di “turbolenza” che rappresentano gli strumenti sintetici per monitorare la rischiosità di un portafoglio. Ci si sofferma quindi sul significato di Var (“Valore a rischio”), di cui si propone un’approssimazione analitica, e si ricordano i motivi (tra cui l’evidenza empirica contraria all’assunzione di normalità) che hanno indotto il Comitato di Basilea a prevedere un fattore di moltiplicazione del Var per fissare il requisito patrimoniale a fronte dei rischi di mercato. Il Var viene poi confrontato con il valore di un’opzione Put che garantisca un livello minimo di patrimonio netto. Si auspica quindi che l’attuale regolamentazione si evolva verso un approccio integrato che determini coerentemente il valore del portafoglio e la sua volatilità in funzione dei fattori finanziari e creditizi (e della concentrazione delle esposizioni verso determinati settori/prenditori di fondi). Il lavoro si chiude con la presentazione di alcune applicazioni che mostrano come l’approccio proposto possa essere attuato in pratica.

Per una versione aggiornata si veda Barone, E., & Braghò, A. (2005). Un modello per la misurazione dei rischi finanziari. In Barone, E. (a cura di),  Economia del Mercato Mobiliare, Vol. 2 - Derivati e Risk Management, 2005, Capitolo 13, pp. 371-400. Luiss University Press.

Derivatives are innovative financial instruments in the 21st century to help the market participants in mitigating the risk. In India, derivatives are introduced at first on index and followed by securities and commodities phase wise for the betterment of the markets and the price discovery. Aftermath of the derivatives introduction on commodities, the market of commodities derivatives started moving with colours and helped a lot the economy. Indian commodity derivatives market has been rationalized in 2003 and futures contracts trading has seen upturn in terms of volume and value surge with very swift growth during that decade. It raised itself to compete in the global market with international giants, such as NYMEX, CBOT, LME, etc., and became the top fifth exchange in terms of number of contracts in gold, second in silver, copper and natural gas. It is found that the trading in commodity derivatives is about three times more than in physical market, whereas, it is more than ten times in advanced economies. In spite of reaching global standards, the market is facing the challenges due to lack of infrastructure, warehousing, inadequate risk mitigating instruments, etc. If the regulators take cognizance of these issues, Indian commodity derivatives market will become definitely an icon among the world commodity derivatives market. At present 6 national level exchanges working in the country, these exchanges are under the regulatory system of SEBI. In previous time it comes under Forward Market Commission (FMC), Government of India. By and large, the market has staged a spectacular growth of trading in terms of volume and value of commodity trading. It is very clear through the statistics that 53 commodities notified and permitted for futures trading in 2003 by Forward Market Commission moved to 113 in agricultural and non-agricultural commodities futures contracts. On the other hand, the market has registered a significant growth in terms of value, which was Rs.12.9364 billion in 2003-04 and augmented to Rs. 1812.6104, 1704.6840 and 1014.4795 billion during the last three years, i.e., 2010-11, 2012-2013 and 2013-14 respectively. This paper examines the performance of Indian commodity derivatives market by evaluating the growth of the market in terms of number of commodities permitted for trading, volume and value of the commodity derivatives traded. The performance of the commodity market found through the volume and value of market has been growing at average compounded growth by 15 and 29 percent respectively and it is found that the growth between volume and value is non-linear as far as their estimated and actual growth is concerned. This paper shows percentage participation of different exchanges in commodity trading and challenges faced by Indian commodity market.

This paper illustrates the profound difference between a risk management strategy of variance minimization and a risk management strategy of lower tail outcome elimination. Risk managers concerned about the variability of cash flows will tend to center their hedge decisions on their best guess on future cash flows (the budget), while risk managers concerned about costly lower tail outcomes will hedge (considerably) less depending on the level of uncertainty. A risk management strategy of lower tail outcome elimination is in line with theoretical recommendations in a corporate value-adding perspective. A cross -case study of blue-chip industrial companies partly supports the empirical use of a risk management strategy of lower tail outcome elimination but does not exclude other factors from (co-)driving the observations.

The objective of the study is to investigate the relationship between firm size and stock returns for firms listed on the Zimbabwe Stock Exchange (ZSE) between June 2009 and July 2013. We adopt the regression model employed by Banz in 1981, with innovations. The regression is based on constructed portfolios, with market capitalization as the basis for portfolio construction. The portfolios comprise at most 5 stocks, and stocks are sorted in ascending order by market capitalization for selection into portfolios. The sample period spans from June 2009 to July 2013. We select the sample period beginning from 2009 because that is when the government of Zimbabwe demonetized the Zimbabwean dollar and adopted a basket of foreign currencies as legal tender. The data prior to 2009 is also distorted by hyperinflation and therefore is not reliable. The sample size covers 64 companies listed on the ZSE, of which 60 are industrial and 4 are mining companies. We find that the estimated coefficien...

This paper presents a framework to portfolio optimization that is superior to the mean-variance approaches utilized for asset allocation. We show how a portfolio with heavily differing asset types in various market phases can be managed efficiently by using a ratio-based portfolio optimization approach and provide a general solution to related optimization problems and the technical challenges arising from them. Portfolio optimization is done by using a modified version of the R ratio in a benchmark-free setting for real estate funds of funds (FoFs). We use a genetic algorithm to solve the non-quasi-convex optimization problem and propose the use of genetic algorithms for related ratio-based optimization problems. Our results show the appropriateness of both the modified R ratio and the genetic algorithm used to optimize the fund portfolios in the benchmark-free environment. The algorithm efficiently solves the non-quasi-convex type of problem and related approaches of portfolio optimization are outperformed by the R ratio focused approach.

In Serbia there existed a period of investment growth, which reflected itself on the growth of stock market indices. The aim of this paper is to evaluate market risk at the Serbian market in period of investment growth, applying the method of historical simulation to a portfolio consisting of shares that are continuously traded at the Belgrade Stock Exchange, for which the data existed, since the Serbian stock exchange market is a young one, practically beginning. Method verification was carried out at different confidence levels, which demonstrated that the method underestimated the risk for the confidence level of 99%.

indicate that global financial crisis has negative impact on all aspects of insurance companies' business and suggest the need to focus on core business activities and the necessity of further improvement of holistic risk and capital management of global and regional insurers with the aim to overcome problems imposed by financial crisis. 1

In Serbia there existed a period of investment growth, which reflected itself on the growth of stock market indices. The aim of this paper is to evaluate market risk at the Serbian market in period of investment growth, applying the method of historical simulation to a portfolio consisting of shares that are continuously traded at the Belgrade Stock Exchange, for which the data existed, since the Serbian stock exchange market is a young one, practically beginning. Method verification was carried out at different confidence levels, which demonstrated that the method underestimated the risk for the confidence level of 99%.

O objetivo desta pesquisa foi analisar a viabilidade econômico-financeira do investimento realizado em um confinamento de bovinos de corte do estado de Goiás por meio da aplicação do Método Tradicional com utilização dos seguintes indicadores: Valor Presente Líquido (VPL), Benefício/Custo (B/C) e Taxa Interna de Retorno (TIR). Na construção do Fluxo de Caixa utilizaram-se valores-base originários de uma propriedade e, posteriormente, foram projetados para os anos subsequentes, com uso de taxa geométrica de crescimento. Para a receita a taxa foi calculada a partir de uma série de preços de arroba do boi gordo. Para o custo de produção utilizaram-se as séries custo diário do confinamento e preços de boi magro. Todas as séries utilizadas foram corrigidas para dezembro de 2022. Os resultados obtidos indicaram viabilidade econômico-financeira para o projeto em um horizonte de 5 anos, VPL é positivo, B/C é maior que 1 e TIR maior que a Taxa Mínima de Atratividade (TMA), e inviabilidade quando analisado para um horizonte de 10 anos, conforme a Taxa Interna de Retorno Modificada (MTIR) menor que a TMA de 12%. A técnica bootstrapping trouxe maior segurança na decisão do investimento ao indicar 95% de probabilidade do valor do VPL ser positivo.

The paper reviews the history and the economics of the French PWR program, which is arguably the most successful nuclear-scale up experience in an industrialized country. Key to this success was a unique institutional framework that allowed for centralized decision making, a high degree of standardization, and regulatory stability, all epitomized by comparatively short reactor construction times. Many colleagues have graciously lent their time and expertise in personal interviews, email exchanges, comments, and in providing historical references. I wish to thank in particular: Benjamin Dessus, Dominique Finon, Philippe Girard, Amory Lovins, Yves Marignac, Mycle Schneider, and Steven Thomas for their insights and collegial exchanges. Any errors and misinterpretations of this case study remain entirely with the author. I also wish to thank Jon Koomey and Nate Hultman for making their detailed US data available as well as Peter Kolp for his most useful help in the analysis and preparation of figures.

This paper develops a model of bank behavior that focuses on the interaction between the incentives created by xed rate deposit insurance and a bank's choice of its loan portfolio and its portfolio of market-traded nancial assets. The model is used to analyze the consequences of adopting the Federal Reserve Board's proposed Pre-Commitment Approach (PCA) for setting capital requirements for the market risks of a bank's trading portfolio. Under the PCA, a bank sets its own market risk capital requirement with the knowledge that it will face regulatory penalties should its trading activities generate subsequent losses that exceed its market risk capital pre-commitment.

Although margin requirements would arise naturally in the context of unregulated trading of clearinghouse-guaranteed derivative contracts, the margin requirements on U.S. exchange-traded derivative products are subject to government regulatory oversight. At present, two alternative methodologies are used for margining exchangetraded derivative contracts. Customer positions in securities and securities options are margined using a strategy-based approach. Futures, futures-options, and securitiesoption clearinghouse margins are set using a portfolio margining system. This study evaluates the relative eciency of these alternative margining techniques using data on S&P500 futures-option contracts traded on the Chicago Mercantile Exchange. The results indicate that the portfolio margining approach i s a m uch more ecient system for collateralizing the one-day risk exposures of equity derivative portfolios. Given the overwhelming eciency advantage of the portfolio approach, the simultaneous existence of these alternative margining methods is somewhat puzzling. It is argued that the co-existence of these systems can in part be explained in the context of Kane's (1984) model of regulatory competition. The eciency comparison also provides insight into other industry and regulatory issues including the design of bilateral collateralization agreements and the eciency of alternative s c hemes that have been proposed for setting regulatory capital requirements for market risk in banks and other nancial institutions.

This paper develops a model of bank behavior that focuses on the interaction between the incentives created by xed rate deposit insurance and a bank's choice of its loan portfolio and its portfolio of market-traded nancial assets. The model is used to analyze the consequences of adopting the Federal Reserve Board's proposed Pre-Commitment Approach (PCA) for setting capital requirements for the market risks of a bank's trading portfolio. Under the PCA, a bank sets its own market risk capital requirement with the knowledge that it will face regulatory penalties should its trading activities generate subsequent losses that exceed its market risk capital pre-commitment.

Although margin requirements would arise naturally in the context of unregulated trading of clearinghouse-guaranteed derivative contracts, the margin requirements on U.S. exchange-traded derivative products are subject to government regulatory oversight. At present, two alternative methodologies are used for margining exchangetraded derivative contracts. Customer positions in securities and securities options are margined using a strategy-based approach. Futures, futures-options, and securitiesoption clearinghouse margins are set using a portfolio margining system. This study evaluates the relative eciency of these alternative margining techniques using data on S&P500 futures-option contracts traded on the Chicago Mercantile Exchange. The results indicate that the portfolio margining approach i s a m uch more ecient system for collateralizing the one-day risk exposures of equity derivative portfolios. Given the overwhelming eciency advantage of the portfolio approach, the simultaneous existence of these alternative margining methods is somewhat puzzling. It is argued that the co-existence of these systems can in part be explained in the context of Kane's (1984) model of regulatory competition. The eciency comparison also provides insight into other industry and regulatory issues including the design of bilateral collateralization agreements and the eciency of alternative s c hemes that have been proposed for setting regulatory capital requirements for market risk in banks and other nancial institutions.

This study examines the Capital Asset Pricing Model of Lintner (1965) and Black (1972) as the benchmark model in the asset pricing theory. The empirical findings indicate that the Sharpe-Lintner-Black CAPM inadequately, particularly the explains Pakistan's equity market economically and statistically significant role of market risk for the determination of expected returns. Instead of identifying more risk factors, a detailed analysis of a single risk factor is undertaken. We have concentrated on two main extensions of the standard CAPM model. First, the standard model is extended by taking higher moments into account. Second, the risk factors are allowed to vary over time in the autoregressive process. The result of unconditional non-linear generalisation of the standard model reveals that in the higher-moment CAPM model the investors are rewarded for co-skewness risk. However, the test provides marginal support for rewards of the co-kurtosis risk. Finally, the empirical usefulness of conditional higher moments in explaining the cross-section of asset return is investigated. The results indicate that the conditional co-skewness is an important determinant of asset pricing, and the asset pricing relationship varies through time. The conditional covariance and the conditional co-kurtosis explain the asset price relationship in a limited way. It is concluded that attempts to develop a modified form of the Sharpe-Lintner-Black CAPM and is more successful with KSE data.

The study assessed the impact of financial risk on the financial performance of listed manufacturing firms in Tanzania at the Dar es Salaam Stock Exchange (DSE). Proxies used to represent financial risk, as independent variables, were credit risk and liquidity risk, and financial performance metrics were return on assets (ROA) and return on equity (ROE). A quantitative research design was used to gather secondary data from audited financial statements of listed manufacturing firms at DSE from 2008 to 2022 (15-year period). The balanced panel regression model was used to test the hypotheses by using Stata 11 software as a tool for analysis. The result reveals that liquidity risk exerts a positive and significant impact on ROA. In contrast, credit risk exerts a negative and significant impact on ROE. These findings highlight the importance of enhancing risk management practices and prudential oversight to safeguard a manufacturing firm's financial performance. The analysis may assist investors, both current and prospective, government officials, financial managers, brokers, and the authority dealing with investments in the manufacturing companies listed under DSE to formulate policies and analyze their investments to increase value to stakeholders and look for a better way of stabilizing the economy of these companies and the national economy in general.

Crop producers have numerous marketing and risk management tools available. Research relating producers' risk attitudes to their use of these tools has produced mixed results, and most studies focus on individual tools to the neglect of complementarities among them. Hence, little is known about the proportion in which these tools are used, e.g., the percentage of the crop that is forward sold as opposed to hedged. This study identifies some factors, including risk attitude, that impact the proportion of corn producers' sales through spot markets, futures and options, and forward and production contracts using complementary survey and accounting data.

The storage at a loss paradox - inventories despite an inadequate spot-futures price spread to cover storage costs - is an unresolved issue of long-standing interest to economists. Alternative explanations include risk premiums for futures market speculators, convenience yields from holding inventories, and mismeasurement/aggregation of data. Statistical analyses of regional- and elevator-level data suggest that aggregation can impact results, and that soybean price behavior is generally consistent with inter-temporal arbitrage conditions, while corn price behavior points to convenience yields at longer horizons.

Researchers employ various measures of risk attitudes to investigate their relation to market behavior with mixed results. We find that a higher-order global risk attitude construct, developed using survey scales and experiments based on expected utility theory, is related to several marketing alternatives, but does not exhibit substantially greater explanatory power than underlying measures. With few exceptions, scales yield greater significance of risk attitudes for these choices, but experimental measures reveal other insights, e.g., differential attitudes in gain and loss domains. Given recent concerns with experimental measures in the literature, we suggest studies include scales as a low cost supplemental measure.

The banking industry is an industry that is laden with risks, especially as it involves the management of public money and screened in the form of investment. To minimize the risks faced, bank management should have sufficient expertise and competence, so that a variety of risks that could potentially arise can be anticipated from the beginning, and look for a better way of handling it. The types of risks presented by the economists are very diverse but substantially similar to one another. Broadly speaking, the grouping of risk conducted by economists are almost the same description and its coverage. The bigger and modern bank, the more numerous and complex risks that it faces. Financial risks faced by the banking industry, can be broadly grouped into five (5) major risk, namely: (1) credit risk, (2) market risk, (3) liquidity risk, (4) operational risks, and ( ) risk capital. These risks are presented in the financial ratios, indicating that the performance achieved by management in managing a bank. Bank Indonesia based on the Basel II classifies eight (8) types of risk are generally divided into two (2) categories of risk, which can be measured (quantitative), namely credit risk, market risk, liquidity risk, operational risk and risks are difficult to measure (qualitative) that legal risk, strategic risk, reputation risk and compliance risk.

An inherent problem with comparing and ranking competing Value at Risk (VaR) and Expected shortfall (ES) models is that they measure only a single realization of the underlying data generation process. The question is whether there is any significant statistical difference in the performance of different models. Is it only a matter of chance that in a particular market and in particular time period a certain model performs better than some other? It all comes down to a question whether something that we subjectively perceive as different is actually statistically different. We introduce a new methodology for ranking and comparing the performance of VaR and ES models based on a nonparametric ANOVA test. The relative performance of VaR and ES models is analysed using daily returns for sixteen stock market indices (eight each from developed and emerging markets) prior to and during the global financial crisis. Results show that for a large number of different models there is no statistically significant difference in their performance. The top performers are conditional extreme value GARCH model, models based on volatility updating and nonparametric mirrored historical simulation. ES backtesting results are similar to VaR results with the models being even more closely matched. The same models that were the top performers in VaR comparison also perform significantly better in ES estimation.

This paper describes a prototype quantitative framework for gauging systemic risk which explicitly characterizes banks' balance sheets and allows for macro credit risk, interest income risk, market risk, network interactions, and asset-side feedback effects. In presenting our results, we focus on projections for systemwide banking assets in the United Kingdom, considering both unconditional distributions and stress scenarios. We show how a combination of extreme credit and trading losses can * We would like to thank Emma Mattingley and Ruth Yu for excellent research assistance. The analysis in this paper has benefited from encouragement and contributions from numerous colleagues at the Bank of England and elsewhere. In particular, we are grateful to

This paper describes a quantitative framework for gauging systemic risk which explicitly characterises banks'balance sheets and allows for macro-credit risk, interest income risk, market risk, network interactions, and asset-side feedback e¤ects. In presenting our results, we focus on projections for system-wide banking assets in the United Kingdom, considering both unconditional distributions and stress scenarios. We show how a combination of extreme credit and trading losses could precipitate fundamental defaults and illustrate the possibility of contagious default associated with network e¤ects and …re sales of distressed assets. Despite the joint normality of all risk factors, the model generates a bimodal asset distribution.

Whilst central banks have long used models to guide monetary policy decisions, models of financial stability and systemic risk are much less well developed. The lack of an adequate analytical framework has meant that the financial stability risk-assessment work of central ...

We show that some specific market risk measures implied by current international capital regulation (the Basel Accords and the Capital Adequacy Directive of the European Union) violate the obvious requirement of convexity in some regions in the space of portfolio weights.

We analyze the performance of RiskMetrics, a widely used methodology for measuring market risk. Based on the assumption of normally distributed returns, the RiskMetrics model completely ignores the presence of fat tails in the distribution function, which is an important feature of financial data. Nevertheless, it was commonly found that RiskMetrics performs satisfactorily well, and therefore the technique has become widely used in the financial industry. We find, however, that the success of RiskMetrics is the artifact of the choice of the risk measure. First, the outstanding performance of volatility estimates is basically due to the choice of a very short (one-period ahead) forecasting horizon. Second, the satisfactory performance in obtaining Value-at-Risk by simply multiplying volatility with a constant factor is mainly due to the choice of the particular significance level.

This study explores the interplay of financial risk and corporate governance on the financial performance of Banks in Indonesia's. Data from 19 Exchange-listed Indonesian banks' 2021-2022 reports were analyzed via variable and PLS-SEM methods. Credit risk impact was found minor, while market risk significantly influenced performance. Managerial ownership positively affected, while public ownership had substantial impact. Thus, governance disclosure affects bank performance. Managing market risks and enhancing ownership practices is crucial. Findings suggest revising credit risk assessment for indirect performance betterment. Improving governance and addressing market risk can elevate banking performance. Insights guide the sector in enhancing performance determinants, informed by this study.

Multilateral Development Banks (MDBs) are exploring scalable risk transfer strategies to expand their lending capacity and meet the ‘billions to trillions agenda’ adopted in 2015. This report outlines a roadmap for MDBs to implement large-scale risk transfer by drawing lessons from commercial banks and US mortgage refinance agencies.

Commercial banks utilize standardized ‘platforms’ to efficiently transfer risk, benefiting from economies of scale and streamlined processes. While these banks operate independently, they adhere to regulatory reporting standards, providing a degree of coordination.

US Government Agencies and Government Sponsored Enterprises (GSEs) offer a more coordinated approach, enforcing data standards that support efficient loan risk transfers from initial contracts to investor reporting. This model may be particularly relevant for MDBs, given their cooperative nature.

MDBs have already taken steps towards coordinated risk transfer, including the Global Emerging Markets Risk Database (GEMs) consortium and institution-specific platforms. However, these initiatives currently lack the comprehensive data required by investors, particularly regarding collateral, financial characteristics, and sustainability metrics.

To achieve truly scalable risk transfer, MDBs need to collaboratively develop a systematic and coordinated approach. This report explores how MDBs can combine existing efforts with new strategies to create an efficient, standardized risk transfer infrastructure that meets investor needs and supports substantial balance sheet expansion.

The purpose of this article is to analyze the policies and regulatory tools of the Central Bank on financial stability in the Iranian banking system. The method of analysis is a descriptive survey. Data were collected through interviews with experts. The validity and reliability of the research tool were confirmed by marketing professors and experts. Data analysis was performed using Lisrel software. Seven main influential factors from the perspective of experts, which include; Ratio of non-current receivables to total payment facility (NP), cash reserves to bank assets (CR), capital adequacy (AC), the real exchange rate (RER), liquidity (LY), debt to asset ratio (DA), internal credit The private sector was agreed upon by the banks (DCP). The results of the KMO test showed that the adequacy of the samples was selected correctly. Bartlett sphericity test is also significant at the level of 99%, which shows that the correlation of data in the community was not zero. That is, the seven...

This paper finds evidence that the Indian stock market has become weak-form efficient, off-late. We proceed by, first, locating structural breaks in the index using Bai-Perron's method for endogenous multiple structural changes. Four structural breaks are identified for the period 1991 to 2008 for the S&P CNX Nifty series -- December 1994, July 1999, June 2003 and January 2006. For this period the behaviour of returns approximates a Stable Paretian distribution. This would mean that the market risk will be beyond that can be predicted by measures build on the assumption of normality of returns. The property of infinite population variance of a stable paretian distribution makes variance based estimators redundant. Therefore, using non-parametric methods the paper tests the efficiency of the market across the periods of structural breaks. It is found that the markets have become weak-form efficient only since the second half of 2003, corresponding to the period of the third stru...

Risk analysis is a systematic study of uncertainties and risks we encounter in business, engineering, public policy, and many other areas. Value at Risk (VaR) is one of the most widely used risk measurements in risk management. In this paper, the Korean Composite Stock Price Index data has been utilized to model the VaR employing the classical ARMA (1,1)-GARCH (1,1) models with normal, t, generalized hyperbolic, and generalized pareto distributed errors. The aim of this paper is to compare the performance of each model in estimating the VaR. The performance of models were compared in terms of the number of VaR violations and Kupiec exceedance test. The GARCH-GPD likelihood ratio unconditional test statistic has been found to have the smallest value among the models.

A Thesis submitted to the Department of Civil Engineering, College of Engineering in partial fulfilment of the requirements for the degree of DOCTOR OF PHILOSOPHY In Climate Change and Land Use MAY 2015 Certification page I hereby declare that this submission is my own work towards the PhD and that, to the best of my knowledge, it contains no material previously published by another person, nor material which has been accepted for the award of any other degree of the University, except where due acknowledgment has been made in the text.

This study investigates the symmetric and asymmetric characteristics as well as the persistence of shocks in the Nigerian crude oil returns, utilizing monthly and daily crude oil prices spanning from January 2006 to September 2022 and November 3, 2009, to November 4, 2022, respectively. Descriptive statistics, normality measures, time plots, and the Dickey-Fuller Generalized Least Squares unit root test were employed to analyze the series properties. Symmetric ARMA (1,1)-GARCH (2,1) and asymmetric ARMA (1,1)-TARCH (2,1) models for monthly and daily returns, with varying innovation densities, were utilized, alongside symmetric GARCH (1,1) and asymmetric TARCH (1,1) models. Model selection criteria including AIC, SIC, HQC, and log likelihood guided the order and error distribution selection. Results revealed non-normal distributions for both monthly and daily prices and returns, non-stationarity in prices, and weak stationarity in log returns with ARCH effects detected in both returns. Symmetric models exhibited volatility clustering, high shocks persistence, mean-reverting behaviour, and predictability in both returns. Asymmetric models identified asymmetry with leverage effects in both returns, indicating that negative shocks induce greater volatility than positive shocks of the same magnitude. Mean reversion and volatility half-life findings suggested that crude oil prices tend to revert to their long-run averages. The study recommended promoting market information flow and aggressive trading to enhance market depth and mitigate the volatile nature of the Nigerian crude oil market.

The volatility index of the Chicago Board Options Exchange (VIX) is the first to have been introduced and it has attracted international imitators world-wide since it is considered as a barometer of investor fear. The aim of the paper is threefold. First, by following the VIX methodology, we construct a volatility index for three European countries (Austria, Finland and Spain) that do not have yet that piece of market information for investors. Second, we investigate the properties of the new volatility indices. In particular, we test their ability to act as fear indicators and as predictors of future returns. Moreover, we shed light on the term structure of the proposed volatility indices, by computing spot and forward implied volatility indices for different time to maturities (30, 60 and 90 days). Our results indicate that volatility indices are useful not only for investors to improve their trading decisions, but also for policy makers to choose the appropriate economic measure to guarantee stability in the market.