Int. J. Financial Stud.2015, 3(3), 177-193; doi:10.3390/ijfs3030177 - published 26 June 2015 Show/Hide Abstract
Abstract: Existing literature has identified domestic restrictive monetary policy and deteriorating funding conditions as the predominant factors explaining the increase in net interoffice accounts of global banks, that is, the net liabilities of parent offices due to their related foreign offices. The purpose of this research is twofold. Firstly, it quantifies the responsiveness of net interoffice accounts to variations in different types of domestic funding. Secondly, the paper assesses whether the relationship between net interoffice accounts and domestic policy-steered rates depends on cross-sectional differences in the funding structure of global banks. Using US banks’ balance sheets data collected by the Federal Financial Institutions Examination Council, the results highlight the importance of domestic repo borrowings in explaining net interoffice accounts, especially for larger banks during the crisis. On the other hand, a negative relationship between policy rates and net interoffice accounts is observed only for those global banks with a relatively higher share of repo borrowings.
Int. J. Financial Stud.2015, 3(2), 162-176; doi:10.3390/ijfs3020162 - published 1 June 2015 Show/Hide Abstract
Abstract: This paper estimates some of the parameters of the Schwartz and Moon (2001)) model using cross-sectional data. Stochastic costs, future financing, capital expenditures and depreciation are taken into account. Some special conditions are also set: the speed of adjustment parameters are equal; the implied half-life of the sales growth process is linked to analyst forecasts; and the risk-adjustment parameter is inferred from the company’s observed stock price beta. The model is illustrated in the valuation of Google, Amazon, eBay, Facebook and Yahoo. The improved model is far superior to the Schwartz and Moon (2001) model.
Int. J. Financial Stud.2015, 3(2), 153-161; doi:10.3390/ijfs3020153 - published 19 May 2015 Show/Hide Abstract
Abstract: This study examines whether the long-run purchasing power parity (PPP) holds in transition economies (Bulgaria, the Czech Republic, Hungary, Latvia, Lithuania, Poland, Romania and Russia) using monthly data over the 1995–2011 period. We apply a recently introduced panel stationary test, which accounts for sharp breaks and smooth shifts. The results indicate that the PPP holds only in two countries (i.e., Lithuania and Poland).
Int. J. Financial Stud.2015, 3(2), 151-152; doi:10.3390/ijfs3020151 - published 13 May 2015 Show/Hide Abstract
Abstract: The sub-prime financial crisis was not simply the result of excessive leverage and inadequate capital, but it was brewing for some time as a result of a gradual deterioration of business leadership, lapses in governance and in the regulatory framework (particularly in derivatives markets), and an ineffective risk-management framework.[...]
Int. J. Financial Stud.2015, 3(2), 136-150; doi:10.3390/ijfs3020136 - published 5 May 2015 Show/Hide Abstract
Abstract: Monte Carlo methods are widely-used simulation tools for market practitioners from trading to risk management. When pricing complex instruments, like mortgage-backed securities (MBS), strong path-dependency and high dimensionality make the Monte Carlo method the most suitable, if not the only, numerical method. In practice, while simulation processes in option-adjusted valuation can be relatively easy to implement, it is a well-known challenge that the convergence and the desired accuracy can only be achieved at the cost of lengthy computational times. In this paper, we study the convergence of Monte Carlo methods in calculating the option-adjusted spread (OAS), effective duration (DUR) and effective convexity (CNVX) of MBS instruments. We further define two new concepts, absolute convergence and relative convergence, and show that while the convergence of OAS requires thousands of simulation paths (absolute convergence), only hundreds of paths may be needed to obtain the desired accuracy for effective duration and effective convexity (relative convergence). These results suggest that practitioners can reduce the computational time substantially without sacrificing simulation accuracy.
Int. J. Financial Stud.2015, 3(2), 102-135; doi:10.3390/ijfs3020102 - published 24 April 2015 Show/Hide Abstract
Abstract: Transaction-cost models in continuous-time markets are considered. Given that investors decide to buy or sell at certain time instants, we study the existence of trading strategies that reach a certain final wealth level in continuous-time markets, under the assumption that transaction costs, built in certain recommended ways, have to be paid. Markets prove to behave in manners that resemble those of complete ones for a wide variety of transaction-cost types. The results are important, but not exclusively, for the pricing of options with transaction costs.