scholarly journals Correlation modelling with application to risk management

2014 ◽  
Author(s):  
Χρυσή Μαρκοπούλου
Keyword(s):  
Risk Management ◽  
Risk Premium ◽  
Accurate Estimation ◽  
Hedge Ratio ◽  
Intraday Data ◽  
Hedging Performance ◽  
Correlation Modelling ◽  
Correlation Risk ◽  
The Impact ◽  
Implied Correlation

Accurate estimation and prediction of correlation is of paramount importance in asset allocation, risk management and hedging applications, particularly in light of recent studies that provide evidence of increased correlation during periods of high volatility, leading to diminishing diversification benefits in states of nature that are most needed. The time-variability of the correlation process has fuelled extensive literature on dynamic correlation modelling. In an attempt to depart from correlation estimation based on projections from historical data, two alternative measures of correlation, namely the implied and the realized correlation, have been proposed in the recent literature. Remarkably, in contrast to volatility estimates, existing studies on the informational efficiency and forecasting performance of respective correlation measures are rather limited.This thesis focuses on exploring the dynamics that govern the evolution of correlation risk premium and its components, namely implied and realized correlation, and assessing the impact of predictability to portfolio allocation, hedging and trading decisions. First, the time-variation and certain distribution characteristics of the correlation risk premium, defined as the difference of realized and implied correlation, are examined. The information content of market –specific and macroeconomic variables, which have been previously reported as proxies of the business cycles, in predicting future premium is also evaluated. Secondly, a model-free measure of implied correlation is proposed and the question of predictable dynamics in the evolution of the series is investigated both in statistical and economic terms. A trading strategy designed to exploit daily changes of the series sets the foundation for addressing the efficient market hypothesis. Finally, based on the distributional properties of realized volatility, correlation and hedge ratio, an alternative forecasting methodology is applied to predictthe realized hedge ratio and to explore the additive value of intraday data in a dynamichedging context while the hedging performance is compared in terms of portfoliooptimization and risk management.The thesis has reached a number of conclusions. First, correlation and correlationrisk premium vary substantially over time and increase sharply during turbulent periods,while culminated during the Asian and Russian financial crisis in 1997-1998 and thesubprime mortgage crisis of 2007-2009. The previously documented correlation riskpremium is no longer significant during the recent 2007 – 2009 crisis, suggesting thedisappearance of arbitrage opportunities. Secondly, the predictability of model-freeimplied correlation series suggested by statistical measures cannot be exploited in termsof economic gains, suggesting that the S&P 100 options market is efficient. Finally,forecasting the dynamics of the realized hedge ratio directly reveals predictable patternsin the evolution of the hedge ratio, resulting in improved hedging performance, in termsof both economics gains and risk measures.

scholarly journals Asymmetric Volatility Risk: Evidence from Option Markets*

2018 ◽  
Vol 23 (4) ◽  
pp. 777-799 ◽  
Author(s):  
Jens Jackwerth ◽  
Grigory Vilkov
Keyword(s):  
Risk Premium ◽  
Option Prices ◽  
Index Options ◽  
Option Markets ◽  
Volatility Risk ◽  
Asymmetric Volatility ◽  
Risk Neutral ◽  
Correlation Risk ◽  
Marginal Risk ◽  
Implied Correlation

Abstract Asymmetric volatility concerns the relation of returns to future expected volatility. Much is known from option prices about the marginal risk-neutral distributions (RNDs) of S&P 500 returns and of relative changes in future expected volatility (VIX). While the bivariate RND cannot be inferred from the marginals, we propose a novel identification based on long-dated index options. We estimate the risk-neutral asymmetric volatility implied correlation (AVIC) and find it to be significantly lower than its realized counterpart. We interpret the economics of the asymmetric volatility correlation risk premium and use AVIC to predict returns, volatility, and risk-neutral quantities.

The Impact of Shariah Governance and Corporate Governance on the Risk Management Practices: Evidence from Local and Foreign Islamic Banks in Malaysia

2018 ◽  
Vol 15 (2) ◽  
pp. 1-20
Author(s):  
Sabri Embi ◽  
Zurina Shafii
Keyword(s):  
Risk Management ◽  
Corporate Governance ◽  
Management Practices ◽  
Principal Component ◽  
T Test ◽  
The Body ◽  
Primary Data ◽  
Islamic Banks ◽  
Shariah Governance ◽  
The Impact

The purpose of this study is to examine the impact of Shariah governance and corporate governance (CG) on the risk management practices (RMPs) of local Islamic banks and foreign Islamic banks operating in Malaysia. The Shariah governance comprises the Shariah review (SR) and Shariah audit (SA) variables. The study also evaluates the level of RMPs, CG, SR, and SA between these two type of banks. With the aid of SPSS version 20, the items for RMPs, CG, SR, and SA were subjected to principal component analysis (PCA). From the PCA, one component or factor was extracted each for the CG, SR, and RMPs while another two factors were extracted for the SA. Primary data was collected using a self-administered survey questionnaire. The questionnaire covers four aspects ; CG, SR, SA, and RMPs. The data received from the 300 usable questionnaires were subjected to correlation and regression analyses as well as an independent t-test. The result of correlation analysis shows that all the four variables have large positive correlations with each other indicating a strong and significant relationship between them. From the regression analysis undertaken, CG, SR, and SA together explained 52.3 percent of the RMPs and CG emerged as the most influential variable that impacts the RMPs. The independent t-test carried out shows that there were significant differences in the CG and SA between the local and foreign Islamic banks. However, there were no significant differences between the two types of the bank in relation to SR and RMPs. The study has contributed to the body of knowledge and is beneficial to academicians, industry players, regulators, and other stakeholders.

The long-run stability of a small, open economy under crawling peg regime

2002 ◽  
Vol 52 (1) ◽  
pp. 57-78
Author(s):  
S. Çiftçioğlu
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Risk Premium ◽  
Small Open Economy ◽  
Exchange Rate Policy ◽  
Price Stability ◽  
Output Stability ◽  
Long Run ◽  
The Exchange Rate ◽  
The Impact

The paper analyses the long-run (steady-state) output and price stability of a small, open economy which adopts a “crawling-peg” type of exchange-rate regime in the presence of various kinds of random shocks. Analytical and simulation results suggest that with the exception of money demand shocks, an exchange rate policy which involves a relatively higher rate of indexation of the exchange rate to price level is likely to lead to the worsening of price stability for all types of shocks. On the other hand, the impact of adopting such a policy on output stability depends on the type of the shock; for policy shocks to the exchange rate and shocks to output demand, output stability is worsened whereas for the shocks to risk premium of domestic assets, supply price of domestic output and the wage rate, better output stability is achieved in the long run.

scholarly journals Volatility Modeling: An Overview of Equity Markets in the Euro Area during COVID-19 Pandemic

Mathematics ◽  
2021 ◽  
Vol 9 (11) ◽  
pp. 1212
Author(s):  
Pierdomenico Duttilo ◽  
Stefano Antonio Gattone ◽  
Tonio Di Di Battista
Keyword(s):  
Stock Market ◽  
Euro Area ◽  
Risk Premium ◽  
Stock Markets ◽  
Market Volatility ◽  
Stock Market Volatility ◽  
Volatility Modeling ◽  
The Impact ◽  
Second Wave ◽  
Daily Returns

Volatility is the most widespread measure of risk. Volatility modeling allows investors to capture potential losses and investment opportunities. This work aims to examine the impact of the two waves of COVID-19 infections on the return and volatility of the stock market indices of the euro area countries. The study also focuses on other important aspects such as time-varying risk premium and leverage effect. This investigation employed the Threshold GARCH(1,1)-in-Mean model with exogenous dummy variables. Daily returns of the euro area stock markets indices from 4th January 2016 to 31st December 2020 has been used for the analysis. The results reveal that euro area stock markets respond differently to the COVID-19 pandemic. Specifically, the first wave of COVID-19 infections had a notable impact on stock market volatility of euro area countries with middle-large financial centres while the second wave had a significant impact only on stock market volatility of Belgium.

scholarly journals Driver Liability Assessment in Vehicle Collisions in Spain

2021 ◽  
Vol 18 (4) ◽  
pp. 1475
Author(s):  
Almudena Sanjurjo-de-No ◽  
Blanca Arenas-Ramírez ◽  
José Mira ◽  
Francisco Aparicio-Izquierdo
Keyword(s):  
Road Safety ◽  
Accurate Estimation ◽  
Main Hypothesis ◽  
Self Organizing Maps ◽  
Safety Measures ◽  
Vehicle Collisions ◽  
Promising Tool ◽  
Visual Clustering ◽  
Open Question ◽  
The Impact

An accurate estimation of exposure is essential for road collision rate estimation, which is key when evaluating the impact of road safety measures. The quasi-induced exposure method was developed to estimate relative exposure for different driver groups based on its main hypothesis: the not-at-fault drivers involved in two-vehicle collisions are taken as a random sample of driver populations. Liability assignment is thus crucial in this method to identify not-at-fault drivers, but often no liability labels are given in collision records, so unsupervised analysis tools are required. To date, most researchers consider only driver and speed offences in liability assignment, but an open question is if more information could be added. To this end, in this paper, the visual clustering technique of self-organizing maps (SOM) has been applied to better understand the multivariate structure in the data, to find out the most important variables for driver liability, analyzing their influence, and to identify relevant liability patterns. The results show that alcohol/drug use could be influential on liability and further analysis is required for disability and sudden illness. More information has been used, given that a larger proportion of the data was considered. SOM thus appears as a promising tool for liability assessment.

scholarly journals Impact of genetic and non-genetic factors on hepatic CYP2C9 expression and activity in Hungarian subjects

2021 ◽  
Vol 11 (1) ◽  
Author(s):  
Ferenc Fekete ◽  
Katalin Mangó ◽  
Máté Déri ◽  
Evelyn Incze ◽  
Annamária Minus ◽  
...  
Keyword(s):  
Genetic Factors ◽  
Accurate Estimation ◽  
Mrna Levels ◽  
Cytochrome P450 Enzymes ◽  
Acid Therapy ◽  
Cyp2c9 Genotype ◽  
Amoxicillin Clavulanic Acid ◽  
Inflammatory Drugs ◽  
The Impact ◽  
Cyp2c9 Activity

AbstractCYP2C9, one of the most abundant hepatic cytochrome P450 enzymes, is involved in metabolism of 15–20% of clinically important drugs (warfarin, sulfonylureas, phenytoin, non-steroid anti-inflammatory drugs). To avoid adverse events and/or impaired drug-response, CYP2C9 pharmacogenetic testing is recommended. The impact of CYP2C9 polymorphic alleles (CYP2C9*2, CYP2C9*3) and phenoconverting non-genetic factors on CYP2C9 function and expression was investigated in liver tissues from Caucasian subjects (N = 164). The presence of CYP2C9*3 allele was associated with CYP2C9 functional impairment, and CYP2C9*2 influenced tolbutamide 4′-hydroxylase activity only in subjects with two polymorphic alleles, whereas the contribution of CYP2C8*3 was not confirmed. In addition to CYP2C9 genetic polymorphisms, non-genetic factors (co-medication with CYP2C9-specific inhibitors/inducers and non-specific factors including amoxicillin + clavulanic acid therapy or chronic alcohol consumption) contributed to the prediction of hepatic CYP2C9 activity; however, a CYP2C9 genotype–phenotype mismatch still existed in 32.6% of the subjects. Substantial variability in CYP2C9 mRNA levels, irrespective of CYP2C9 genotype, was demonstrated; however, CYP2C9 induction and non-specific non-genetic factors potentially resulting in liver injury appeared to modify CYP2C9 expression. In conclusion, complex implementation of CYP2C9 genotype and non-genetic factors for the most accurate estimation of hepatic CYP2C9 activity may improve efficiency and safety of medication with CYP2C9 substrate drugs in clinical practice.

Do disclosure and transparency affect bank’s financial performance?

2019 ◽  
Vol 19 (6) ◽  
pp. 1344-1361
Author(s):  
Isaiah Oino
Keyword(s):  
Risk Management ◽  
Corporate Governance ◽  
Financial Performance ◽  
Financial Institutions ◽  
Content Type ◽  
Loan Portfolios ◽  
Cent Level ◽  
Transparency And Disclosure ◽  
The Impact

Purpose The purpose of this paper is to examine the impact of transparency and disclosure on the financial performance of financial institutions. The emphasis is on assessing transparency and disclosure; auditing and compliance; risk management as indicators of corporate governance; and understanding how these parameters affect bank profitability, liquidity and the quality of loan portfolios. Design/methodology/approach A sample of 20 financial institutions was selected, with ten respondents from each, yielding a total sample size of 200. Principal component analysis (PCA), with inbuilt ability to check for composite reliability, was used to obtain composite indices for the corporate governance indicators as well as the indicators of financial performance, based on a set of questions framed for each institution. Findings The analysis demonstrates that greater disclosure and transparency, improved auditing and compliance and better risk management positively affect the financial performance of financial institutions. In terms of significance, the results show that as the level of disclosure and transparency in managerial affairs increases, the performance of financial institutions – as measured in terms of the quality of loan portfolios, liquidity and profitability – increases by 0.3046, with the effect being statistically significant at the 1 per cent level. Furthermore, as the level of auditing and the degree of compliance with banking regulations increases, the financial performance of banks improves by 0.3309. Research limitations/implications This paper did not consider time series because corporate governance does not change periodically. Practical implications This paper demonstrates the importance of disclosure and transparency in managerial affairs because the performance of financial institutions, as measured in terms of loan portfolios, liquidity and profitability, increases by 0.4 when transparency and disclosure improve, with this effect being statistically significant at the 1 per cent level. Originality/value The use of primary data in assessing the impact of corporate governance on financial performance, instead of secondary data, is the primary novelty of this study. Moreover, PCA is used to assess the weight of the various parameters.

scholarly journals The Influence of Trading Locations on Equity Returns

2016 ◽  
Vol 12 (12) ◽  
pp. 188
Author(s):  
Nguyen N.T. Vo
Keyword(s):  
Risk Premium ◽  
Stock Price ◽  
Listed Companies ◽  
Equity Returns ◽  
Stock Exchanges ◽  
Home Market ◽  
Trade Effect ◽  
Market Index ◽  
Highly Correlated ◽  
The Impact

This paper evaluates the impact of trading locations on equity returns by examining the stock price behaviour of three Anglo-Dutch dual-listed companies which result from mergers where two corporations agree to function as a single operating business, but maintain separate identities. The shares of these stocks are traded not only in their home market but also on several US stock exchanges in the form of American Depository Receipts. Regressing the return differentials on these dual-listed and cross-listed stocks on the relative market index returns and currency changes provides evidence of an apparent violation of the Law of One Price. The regression results show that the return on each part of dual-listed companies is highly correlated with the market on which it is most intensively traded. Similarly, returns on cross-listed stocks have considerably higher co-movement with US market indices and considerably lower co-movement with home-market indices than their home-market counterparts. Market risk premium is not a significant explanatory variable of the location of trade effect.

scholarly journals Analysis of Bio-Risk Management System Implementation in Indonesian Higher Education Laboratory

2021 ◽  
Vol 18 (10) ◽  
pp. 5076
Author(s):  
Anom Bowolaksono ◽  
Fatma Lestari ◽  
Saraswati Andani Satyawardhani ◽  
Abdul Kadir ◽  
Cynthia Febrina Maharani ◽  
...  
Keyword(s):  
Higher Education ◽  
Risk Management ◽  
Management System ◽  
Gap Analysis ◽  
Secondary Data ◽  
Education Institution ◽  
Management Systems ◽  
Primary Data ◽  
Risk Management System ◽  
The Impact

Developing countries face various challenges in implementing bio-risk management systems in the laboratory. In addition, educational settings are considered as workplaces with biohazard risks. Every activity in a laboratory facility carries many potential hazards that can impact human health and the environment and may cause laboratory incidents, including Laboratory Acquired Infections (LAIs). In an effort to minimize the impact and occurrence of these incidents, it is necessary to evaluate the implementation of a bio-risk management system in every activity that involves handling biological agents. This study was conducted in an Indonesian higher-education institution, herein coded as University Y. This is a descriptive, semi-quantitative study aimed at analysing and evaluating the implementation of the bio-risk management systems used in laboratories by analysing the achievements obtained by each laboratory. The study used primary data that were collected using a checklist which referred to ISO 35001: 2019 on Laboratory Bio-risk Management. The checklist consisted of 202 items forming seven main elements. In addition, secondary data obtained from literature and document review were also used. The results show that out of 11 laboratories examined, only 2 laboratories met 50% of the requirements, which were Laboratory A and B, achieving good performance. Regarding the clauses of standards, a gap analysis identified leadership, performance evaluation, and support as elements with the lowest achievement. Therefore, corrective action should be developed by enhancing the commitment from management as well as improving documentation, policy, education and training.

Sign in / Sign up

Export Citation Format

Share Document