Journal of Risk and Financial Management

216 KiB

Open AccessLetter

Global Hedging through Post-Decision State Variables

by Michèle Breton and Frédéric Godin

J. Risk Financial Manag. 2017, 10(3), 16; https://doi.org/10.3390/jrfm10030016 - 9 Aug 2017

Cited by 1 | Viewed by 3862

Unlike delta-hedging or similar methods based on Greeks, global hedging is an approach that optimizes some terminal criterion that depends on the difference between the value of a derivative security and that of its hedging portfolio at maturity or exercise. Global hedging methods in discrete time can be implemented using dynamic programming. They provide optimal strategies at all rebalancing dates for all possible states of the world, and can easily accommodate transaction fees and other frictions. However, considering transaction fees in the dynamic programming model requires the inclusion of an additional state variable, which translates into a significant increase of the computational burden. In this short note, we show how a decomposition technique based on the concept of post-decision state variables can be used to reduce the complexity of the computations to the level of a problem without transaction fees. The latter complexity reduction allows for substantial gains in terms of computing time and should therefore contribute to increasing the applicability of global hedging schemes in practice where the timely execution of portfolio rebalancing trades is crucial. Full article

(This article belongs to the Special Issue Financial Derivatives and Hedging)

304 KiB

Open AccessArticle

Trade Openness and Bank Risk-Taking Behavior: Evidence from Emerging Economies

by Badar Nadeem Ashraf, Sidra Arshad and Liang Yan

J. Risk Financial Manag. 2017, 10(3), 15; https://doi.org/10.3390/jrfm10030015 - 29 Jul 2017

Cited by 29 | Viewed by 6093

Abstract

In this paper, we examine the impact of trade openness on bank risk-taking behavior. Using a panel dataset of 291 banks from 37 emerging countries over the period from 1998 to 2012, we find that higher trade openness decreases bank risk-taking. The results are robust when we use alternative bank risk-taking proxies and alternative estimation methods. We argue that trade openness provides diversification opportunities to banks in lending activities, which decrease overall bank risk. Further to this end, we observe that higher trade openness helps domestic banks to smooth out income volatility and decreases the impact of a financial crisis on banks. Full article

(This article belongs to the Special Issue Financial Stability and Regulation / Basel III)

11171 KiB

Open AccessArticle

Safety Evaluation of Evacuation Routes in Central Tokyo Assuming a Large-Scale Evacuation in Case of Earthquake Disasters

by Kayoko Yamamoto and Ximing Li

J. Risk Financial Manag. 2017, 10(3), 14; https://doi.org/10.3390/jrfm10030014 - 27 Jun 2017

Cited by 8 | Viewed by 7083

Abstract

The present study aims to conduct a quantitative evaluation of evacuation route safety using the Ant Colony Optimization (ACO) algorithm for risk management in central Tokyo. Firstly, the similarity in safety was focused on while taking into consideration road blockage probability. Then, by classifying roads by means of the hierarchical cluster analysis, the congestion rates of evacuation routes using ACO simulations were estimated. Based on these results, the multiple evacuation routes extracted were visualized on digital maps by means of Geographic Information Systems (GIS), and their safety was evaluated. Furthermore, the selection of safe evacuation routes between evacuation sites for cases when the possibility of large-scale evacuation after an earthquake disaster is high is made possible. As the evaluation method is based on public information, by obtaining the same geographic information as the present study, it is effective in other areas, regardless of whether the information is from the past or future. Therefore, in addition to spatial reproducibility, the evaluation method also has high temporal reproducibility. Because safety evaluations are conducted on evacuation routes based on quantified data, the selected highly safe evacuation routes have been quantitatively evaluated, and thus serve as an effective indicator when selecting evacuation routes. Full article

(This article belongs to the Special Issue Risk Management Based on Intelligent Information Processing)

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J. Risk Financial Manag., Volume 10, Issue 3 (September 2017) – 3 articles

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