scholarly journals Hedge or Rebalance: Optimal Risk Management with Transaction Costs

Risks ◽  
2018 ◽  
Vol 6 (4) ◽  
pp. 112
Author(s):  
Florent Gallien ◽  
Serge Kassibrakis ◽  
Semyon Malamud
Keyword(s):  
Risk Management ◽  
Lower Bound ◽  
Transaction Costs ◽  
Balance Sheet ◽  
Total Risk ◽  
Current Position ◽  
Net Return ◽  
Trading Zone ◽  
Futures Contract ◽  
The Impact

We solve the problem of optimal risk management for an investor holding an illiquid, alpha-generating fund and hedging his/her position with a liquid futures contract. When the investor is subject to a lower bound on net return, he/she is forced to reduce the total risk of his/her portfolio after a loss. In this case, he/she faces a tradeoff of either paying the transaction costs and deleveraging or keeping his/her current position in the illiquid instrument and hedging away some of the risk while keeping the residual, unhedgeable risk on his/her balance sheet. We explicitly characterize this tradeoff and study its dependence on asset characteristics. In particular, we show that higher alpha and lower beta typically widen the no-trading zone, while the impact of volatility is ambiguous.

scholarly journals The Impact of Total Risk Management on Company's Performance

2016 ◽  
Vol 220 ◽  
pp. 271-277 ◽  
Author(s):  
Hamdu Kedir Mohammed ◽  
Adriana Knapkova
Keyword(s):  
Risk Management ◽  
Total Risk ◽  
The Impact

scholarly journals Model of risk management of construction project based on transaction costs

2018 ◽  
Vol 193 ◽  
pp. 05025
Author(s):  
Irina Vladimirova ◽  
Pavel Zemskov ◽  
Anna Tsygankova
Keyword(s):  
Risk Management ◽  
Transaction Costs ◽  
Construction Projects ◽  
Baikal Region ◽  
Construction Project ◽  
Management Model ◽  
The Russian Federation ◽  
Quantitative Indicators ◽  
The Impact ◽  
The Relationship

The paper studies the relationship between transaction costs and risk management in the construction projects affecting ecosystem considering economic externalities. Quantitative indicators of the impact of transaction costs on the level of risk in the project are thoroughly investigated. The construction project risk management model based on transaction costs is discussed in detail. Collected and experimental data of the construction project, which has a significant impact on the ecology of the Baikal region in the Russian Federation is analyzed and the uncertainty reduction caused by transaction costs is measured.

scholarly journals Does contract size matter for price discovery and risk management in stock index futures?

2016 ◽  
Vol 13 (3) ◽  
pp. 62-74
Author(s):  
Sangram Keshari Jena ◽  
Ashutosh Dash
Keyword(s):  
Risk Management ◽  
Price Discovery ◽  
Stock Index ◽  
Stock Index Futures ◽  
Lot Size ◽  
Open Interest ◽  
Index Futures ◽  
Futures Contract ◽  
Size Matter ◽  
The Impact

In an effort to increase the liquidity and accessibility to the investors, National Stock Exchange of India (NSE) had reduced contract size of its Nifty index futures two times from 200 to 100 and, subsequently, to 50 units. How does this change in contract size of index futures impact the informed and hedge based trading, thereby contributing to the twin objectives of price discovery and risk management, respectively? VAR model is applied to daily return volatility, volume and open interest to study the impact. Significant feedback relationship between volume and volatility following the reduction in contract size establishes the informational trading and price discovery. However, no causality from volatility to open interest implies contract size is not a determinant of hedging. But significant causality from open interest to volatility is establishing the non-informational and liquidity trading. So stock exchanges should consider the appropriate lot size before going for introducing new futures contract

scholarly journals Evaluation of the efficiency of European Union farms: a risk-adjusted return approach

2018 ◽  
Vol 64 (No. 6) ◽  
pp. 241-255
Author(s):  
Alekneviciene Vilija ◽  
Stareviciute Birute ◽  
Alekneviciute Egle
Keyword(s):  
European Union ◽  
Risk Management ◽  
Member State ◽  
Systemic Risk ◽  
Financial Support ◽  
Total Risk ◽  
Farm Efficiency ◽  
Sharpe Ratios ◽  
The Impact ◽  
The Eu

The aim of this study was to assess the efficiency of EU member-state farms using a risk-adjusted return approach and to determine the impact of subsidies on the efficiency of EU farms. Farm efficiency was analysed by the member-state and by the type of farming and was based on the calculation of Sharpe and Treynor ratios. Systemic risk was expressed by standard deviation in order to estimate the share of systemic risk in the total risk. The change in Sharpe ratios was assessed to determine the impact of subsidies on EU farm efficiency. The results of the risk-adjusted return analysis reveal that farms in the EU-15 were more efficient than farms in the EU-12 in 2004–2013, possibly due to being more experienced in risk management. Nevertheless, the EU-15 did not undertake a bigger share of systemic risk when compared to the EU-12 farms. The impact of financial support on the efficiency of the EU-12 farms was also not stronger when compared to the EU-15 farms.

scholarly journals PROCEDURE FOR IDENTIFICATION OF RESERVES AND METHODS OF REFLECTING THEM IN ACCOUNT – A RISK MANAGEMENT TOOL FOR CALCULATIONS OF ENTERPRISES

2021 ◽  
Vol 71 (2) ◽  
Author(s):  
Anna Hevchuk
Keyword(s):  
Risk Management ◽  
Balance Sheet ◽  
Management Tool ◽  
Individual Risk ◽  
Risk Indicator ◽  
Negative Consequences ◽  
Industrial Enterprises ◽  
Integrated Risk ◽  
The Matrix ◽  
The Impact

Іt is proved that business risk management of agro-industrial enterprises requires the introduction of an effective risk management system. In this aspect, the risk management methodology plays an important role and determines the future effectiveness of risk management methods, actions and measures. The study identified three groups of accounting reserves, which cover all components of calculations as an integrated object of accounting and are one of the effective methods of risk management in optimizing the impact of risk on the activities of the business entity. The procedure for selecting a reserve in risk management of enterprise settlements is developed, proposals are made in terms of methodology for calculating reserves taking into account the impact of risks, implemented through the matrix of risk calculations of agribusiness enterprises, group integrated risk indicator and individual risk indicator for individual settlements with debtors / creditors. It is determined that one of the methods of risk management of settlement operations of agribusiness enterprises is internal provisioning to cover the negative consequences of risks arising from non-receipt / non-repayment of receivables and payables for settlement operations with direct and indirect business interest. It is proposed to improve the method of forming reserves through the accumulation of information on the accrual of accounting reserves in transit account 841 "Reserves for settlements in risk conditions", in particular in social and environmental areas, which will assess the effectiveness of risk management in terms of internal provisions. integrated risk reporting on the components of the agribusiness company. It is determined, in addition to the formation and accounting of reserves for risk management of settlements, to keep off-balance sheet records of contingent assets and liabilities, as well as guarantees and collateral received / provided. This will allow to clearly identify possible threats, risk factors and the need to review the size of the reserve, the feasibility of additional accrual or reversal.

Impact of Intellectual Capital and Total Risk Management on Bank Performance

2021 ◽  
Vol 11 (1) ◽  
pp. 14-28
Author(s):  
Md. Saiful Islam ◽  
Md. Azizur Rahman ◽  
Sayedul Anam
Keyword(s):  
Risk Management ◽  
Intellectual Capital ◽  
Banking Industry ◽  
Adverse Impact ◽  
Bank Performance ◽  
Total Risk ◽  
Economic Stability ◽  
Sources Of Uncertainty ◽  
The Impact ◽  
The Relationship

Bank performance is treated as a pivotal indicator of total economic stability of a country. Generally, the intellectual capital measurement is the study of the impact of intellectual capital on the banks performance and gives some proposal aiming to improve the efficiency of the banking industry. The TRM encompasses all the activities that affect its risk domain. Risks are generally defined by the adverse impact on profitability of several distinct sources of uncertainty. The prime focus of this study is to find out the relationship among intellectual capital, total risk management, and the performance of Bangladeshi listed banks. The result shows that bank performance has no statistically significant relationship with total risk management of the sample banks and level of investment on intellectual capital. Likewise, the findings of the study are as comparable with some other studies where the authors have found similar and/or different economic characteristics.

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.

MENGELOLA RESIKO DENGAN PRODUK DERIVATIF

2008 ◽  
Author(s):  
Dandes Rifa
Keyword(s):  
Risk Management ◽  
Value At Risk ◽  
Foreign Currency ◽  
Balance Sheet ◽  
Cash Flows ◽  
Market Risks ◽  
Hedging Strategies ◽  
Operational Hedging ◽  
Potential Risks ◽  
Derivative Products

The main objective of risk management is to minimize the potential for losses (risk) arising from unexpected changes in currency rates, credit, commodities and equities. One of the risks faced by companies is market risk (value at risk). This article aims to explain that risk management can be one of them by using derivative products. Derivative transactions is very useful for business people who want to hedge (hedging) against a commodity, which always experience price changes from time to time. There are three strategies that can be used to hedge the balance sheet hedging strategy, operational hedging strategies and contractual hedging strategies. Staregi contractual hedging is a form of protection that is done by forming a contractual hedging instruments in order to provide greater flexibility to managers in managing the potential risks faced by foreign currency. Most of these contractual hedging instrument in the form of derivative products. The management can enhance shareholder value by controlling risk. -Party investors and other interested parties hope that the financial manager is able to identify and manage market risks to be faced. If the value of the firm equals the present value of future cash flows, then risk management can be justified. 

The Relation between Accounting Information in Debt Covenants and Operating Leases

2015 ◽  
Vol 29 (4) ◽  
pp. 969-996 ◽  
Author(s):  
Daniel Gyung H. Paik ◽  
Joyce A. van der Laan Smith ◽  
Brandon Byunghwan Lee ◽  
Sung Wook Yoon
Keyword(s):  
Balance Sheet ◽  
Accounting Information ◽  
Debt Covenants ◽  
Debt Contracts ◽  
Debt Contracting ◽  
Income Statement ◽  
Operating Leases ◽  
The Impact ◽  
Accounting Ratios ◽  
Lease Accounting

SYNOPSIS Proposed changes by the FASB and the IASB to lease accounting standards will substantially change the accounting for operating leases by requiring the capitalization of future lease payments. We consider the impact of these changes on firms' debt covenants by examining the frequency of income-statement- versus balance-sheet-based accounting ratios in debt covenants of firms in high and low Off Balance Sheet (OBS) lease industries. Based on debt contracts from the 1996–2009 period, our results provide evidence that lenders focus on balance sheet (income statement) ratios in designing debt covenants for borrowers in low (high) OBS lease industries. Further, the use of balance-sheet- (income-statement-) based covenants falls (rises) faster in high OBS lease industries than in low OBS lease industries as the use of OBS leasing increases. This evidence indicates that OBS operating leases influence lenders' use of accounting information in covenants, suggesting that creditors consider the impact of OBS leases when structuring debt agreements. These results also suggest that the proposed capitalization of OBS leases may not result in firms violating loan covenants but will make the balance sheet a more complete source of information for debt contracting by removing the need for constructive capitalization of OBS leases.

Sign in / Sign up

Export Citation Format

Share Document