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Special Issue "Risk Measures with Applications in Finance and Economics"

A special issue of Sustainability (ISSN 2071-1050).

Deadline for manuscript submissions: 31 July 2018

Special Issue Editors

Guest Editor
Prof. Dr. Michael McAleer

University Chair Professor, Department of Finance, College of Management, Asia University, Wufeng 41354, Taiwan
Website | E-Mail
Phone: +88635715131ext62534
Interests: theoretical and applied econometrics; financial econometrics; financial economics; finance, theoretical and applied statistics; time series analysis; forecasting; risk management; energy economics and finance; applied mathematics
Guest Editor
Prof. Wing-Keung Wong

Department of Finance, College of Management, Asia University, Wufeng, Taichung, Taiwan
Website | E-Mail
Interests: financial economics; econometrics; mathematical finance; mathematical economics; equity analysis; investment theory; risk management; behavioral finance; behavioral economics; operational research; stochastic dominance theory; time series analysis; Bayesian theory and decision theory

Special Issue Information

Dear Colleagues,

Risk Measures play a vital role in many fields in Economics and Finance.  Using different risk measures could compare the performances of different variables through the analysis of empirical real-world data. For example, risk measures could help to form effective monetary and fiscal policies, and to develop pricing models for financial assets, such as equities, bonds, currencies, and derivative securities.

A Special Issue of “Risk Measures with Applications in Finance and Economics” will be devoted to advancements in the mathematical and statistical development of risk measures with applications in Finance and Economics. This Special Issue will bring together theory, practice and applications of risk measures.

We invite investigators to contribute original research articles in theory and applications of risk measures. All submissions must contain original unpublished work not being considered for publication elsewhere.

Chair Prof. Michael McAleer
Chair Prof. Wing-Keung Wong
Guest Editors

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All papers will be peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Sustainability is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1400 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Published Papers (12 papers)

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Research

Open AccessArticle Financial Hazard Map: Financial Vulnerability Predicted by a Random Forests Classification Model
Sustainability 2018, 10(5), 1530; https://doi.org/10.3390/su10051530
Received: 9 April 2018 / Revised: 8 May 2018 / Accepted: 8 May 2018 / Published: 11 May 2018
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Abstract
This study develops a systematic framework for assessing a country’s financial vulnerability using a predictive classification model of random forests. We introduce a new indicator that quantifies the potential loss in bank assets and measures a country’s overall vulnerability by aggregating these indicators
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This study develops a systematic framework for assessing a country’s financial vulnerability using a predictive classification model of random forests. We introduce a new indicator that quantifies the potential loss in bank assets and measures a country’s overall vulnerability by aggregating these indicators across the banking sector. We also visualize the degree of vulnerability by creating a Financial Hazard Map that highlights countries and regions with underlying risks in their banking sectors. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Balancing Project Financing and Mezzanine Project Financing with Option Value to Mitigate Sponsor’s Risks for Overseas Investment Projects
Sustainability 2018, 10(5), 1498; https://doi.org/10.3390/su10051498
Received: 16 April 2018 / Revised: 3 May 2018 / Accepted: 8 May 2018 / Published: 9 May 2018
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Abstract
Major steel-making companies in Korea have recently been trying to advance into international markets for better profitability and new market shares. Even with strategic partnerships with local organizations, the Korean steel companies are facing and incurring significant risks which impact their ability to
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Major steel-making companies in Korea have recently been trying to advance into international markets for better profitability and new market shares. Even with strategic partnerships with local organizations, the Korean steel companies are facing and incurring significant risks which impact their ability to achieve a sustainable profit. The objective of this research is to determine an optimum combination of financial models, specifically Project (PF) and Mezzanine Financing (MF) with an option (convertible bond and bond with warrant). The results of the proposed model can lower interest rates of financing, thereby increasing the profitability of the project investors. To analyze the MF method’s effectiveness and proper use, the following three steps are applied: (1) Monte-Carlo Simulations (MCS) using Excel and @Risk software are performed for the Net Present Value (NPV) of the project and its volatility; (2) the Black-Scholes model (BSM) is applied to evaluate MF based on project value; and (3) interest rate of MF is calculated from its option value and is reapplied back to the NPV calculation of the project to determine the effects of MF. Assuming a 50% debt/equity ratio, these simulations were performed on five cases (50% senior debt, 0% MF for a base case then increasing MF and decreasing senior debt by 10% four times). Through this process, using the 10%, MF lowered the borrowing size by 20% and using MF continued to lower the borrowing size up to 40% borrowing when using 40% MF. Based on this result, the researchers support the use of MF to optimize Korean steel international financial models. The resultant data will serve as an effective method to increase net cash flow in overseas steel-plant project investments. This research was performed for a steel plant located in Iran as a case-study, but this optimized financing method using MF with an option product can be applied sustainably not only for overseas investment of steel plants but also any other business, such as oil & gas, power generation, and transportation industries. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Efficiency and Risk in Sustaining China’s Food Production and Security: Evidence from Micro-Level Panel Data Analysis of Japonica Rice Production
Sustainability 2018, 10(4), 1282; https://doi.org/10.3390/su10041282
Received: 2 April 2018 / Revised: 17 April 2018 / Accepted: 18 April 2018 / Published: 21 April 2018
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Abstract
Sustainable food production and food security are always challenging issues in China. This paper constructs a multi-element two-level constant-elasticity-of-substitution (CES) model to assess technological progress in, and its contribution to, japonica rice production in China. The results show that the speed of technological
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Sustainable food production and food security are always challenging issues in China. This paper constructs a multi-element two-level constant-elasticity-of-substitution (CES) model to assess technological progress in, and its contribution to, japonica rice production in China. The results show that the speed of technological progress in the production of japonica rice on average was 0.44% per annum in 1985–2013, and technological progress has contributed significantly to the growth of japonica rice production in China. Robustness checks show that the results appear to be sensitive to which sub-sample is used. Labour and some other inputs are found to be significant but negative, especially during the middle sampling period of 1994–2006 and in eastern and western regions. This has important policy implications on the impact of rural-to-urban migration and farmers’ human development. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
Open AccessArticle Risk Profile Indicators and Spanish Banks’ Probability of Default from a Regulatory Approach
Sustainability 2018, 10(4), 1259; https://doi.org/10.3390/su10041259
Received: 25 February 2018 / Revised: 9 April 2018 / Accepted: 16 April 2018 / Published: 19 April 2018
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Abstract
This paper analyses the relationships between the traditional bank risk profile indicators and a new measure of banks’ probability of default that considers the Basel regulatory framework. First, based on the SYstemic Model of Bank Originated Losses (SYMBOL), we calculated the individual probabilities
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This paper analyses the relationships between the traditional bank risk profile indicators and a new measure of banks’ probability of default that considers the Basel regulatory framework. First, based on the SYstemic Model of Bank Originated Losses (SYMBOL), we calculated the individual probabilities of default (PD) of a representative sample of Spanish credit institutions during the period of 2008–2016. Then, panel data regressions were estimated to explore the influence of the risk indicators on the PD. Our findings on the Spanish banking system could be important to regulatory and supervisory authorities. First, the PD based on the SYMBOL model could be used to analyse bank risk from a regulatory approach. Second, the results might be useful for designing new regulations focused on the key factors that affect the banks’ probability of default. Third, our findings reveal that the emphasis on regulation and supervision should differ by type of entity. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
Open AccessArticle Maslow Portfolio Selection for Individuals with Low Financial Sustainability
Sustainability 2018, 10(4), 1128; https://doi.org/10.3390/su10041128
Received: 18 February 2018 / Revised: 22 March 2018 / Accepted: 27 March 2018 / Published: 9 April 2018
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Abstract
In this paper, we extend Maslow’s need hierarchy theory and the two-level optimization approach by developing the framework of the Maslow portfolio selection model (MPSM) by solving the two optimization problems to meet the need of individuals with low financial sustainability who prefer
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In this paper, we extend Maslow’s need hierarchy theory and the two-level optimization approach by developing the framework of the Maslow portfolio selection model (MPSM) by solving the two optimization problems to meet the need of individuals with low financial sustainability who prefer to satisfy their lower-level (safety) need first, and, thereafter, look for higher-level (self-actualization) need to maximize the optimal return. We illustrate our proposed model with real American stock data from the S&P index and conduct the out-of-sample analysis to compare the performance of our proposed Variance-CVaR (conditional value-at-risk) MPSM with both traditional mean-variance and mean-CVaR models. Our empirical analysis shows that our proposed Variance-CVaR MPSM is not only sustainable, but also obtains the best out-of-sample performance in the sense that the optimal portfolios obtained by using our proposed Variance-CVaR MPSM obtain the highest cumulative returns in the out-of-sample period among the models used in our paper. We note that our proposed model is not only suitable to individuals with low financial sustainability, but also suitable to institutions or investors with high financial sustainability. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle The Study of Utility Valuation of Single-Name Credit Derivatives with the Fast-Scale Stochastic Volatility Correction
Sustainability 2018, 10(4), 1027; https://doi.org/10.3390/su10041027
Received: 6 February 2018 / Revised: 12 March 2018 / Accepted: 20 March 2018 / Published: 30 March 2018
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Abstract
In this paper, we study the risk aversion on valuing the single-name credit derivatives with the fast-scale stochastic volatility correction. Two specific utility forms, including the exponential utility and the power utility, are tested as examples in our work. We apply the asymptotic
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In this paper, we study the risk aversion on valuing the single-name credit derivatives with the fast-scale stochastic volatility correction. Two specific utility forms, including the exponential utility and the power utility, are tested as examples in our work. We apply the asymptotic approximation to obtain the solution of the non-linear PDE, and make a comparison of the utility before and after the stochastic volatility modification, and we find that incorporation of fast-scale volatility will lower down the utility. By using the indifference price, we also give the yield spread impacted by the risk adverse valuation. We find that by considering the default risk, yield spread is sloping in a short period and converge in a long run. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Dependence Structures and Systemic Risk of Government Securities Markets in Central and Eastern Europe: A CoVaR-Copula Approach
Sustainability 2018, 10(2), 324; https://doi.org/10.3390/su10020324
Received: 11 December 2017 / Revised: 8 January 2018 / Accepted: 24 January 2018 / Published: 26 January 2018
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Abstract
In this study, we proposed a new empirical method by combining generalized autoregressive score functions and a copula model with high-frequency data to model the conditional time-varying joint distribution of the government bond yields between Poland/Czech Republic/Hungary, and Germany. Capturing the conditional time-varying
[...] Read more.
In this study, we proposed a new empirical method by combining generalized autoregressive score functions and a copula model with high-frequency data to model the conditional time-varying joint distribution of the government bond yields between Poland/Czech Republic/Hungary, and Germany. Capturing the conditional time-varying joint distribution of these bond yields allowed us to precisely measure the dependence of the government securities markets. In particular, we found a high dependence of these government securities markets in the long term, but a low dependence in the short term. In addition, we report that the Czech Republic showed the highest dependence with Germany, while Hungary showed the lowest. Moreover, we found that the systemic risk dynamics were consistent with the idea that the global financial crisis not only had spillover effects on countries with weak economic fundamentals (e.g., Hungary, which had the highest systemic risk), but also had contagion effects for both CEEC-3 countries and Germany. Finally, we confirm that three major market events, namely the EU accession, the global financial crisis, and the European debt crisis, caused structural changes to the dynamic correlation. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle e-Purchase Intention of Taiwanese Consumers: Sustainable Mediation of Perceived Usefulness and Perceived Ease of Use
Sustainability 2018, 10(1), 234; https://doi.org/10.3390/su10010234
Received: 27 October 2017 / Revised: 2 January 2018 / Accepted: 11 January 2018 / Published: 17 January 2018
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Abstract
This study proposes a new model by partially combining personality traits (PT) and Technology Acceptance Model (TAM) attributes to examine the influences of personality characteristics (conscientiousness, openness) and perception of technology (perceived usefulness, perceives ease of use) on e-purchase intention. We use truncate
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This study proposes a new model by partially combining personality traits (PT) and Technology Acceptance Model (TAM) attributes to examine the influences of personality characteristics (conscientiousness, openness) and perception of technology (perceived usefulness, perceives ease of use) on e-purchase intention. We use truncate sampling technique and survey questionnaire to target the sample of Taiwanese online consumers and collect data. We find that consciousness (CON) (personality attribute) significantly influences perceived usefulness (PU) (technology perception attributes), perceived ease of use (PEOU) (technology perception attributes) and openness to experience (OPE) (personality attribute). PU, PEOU and OPE have significant impacts on e-purchase intention (INT). PEOU has the strongest positive impact on (INT). In addition, PU, PEOU and OPE combined together mediate the relationship between CON and INT. Further post hoc analysis of the mediation shows that both PU and PEOU are sustainable mediators. However, OPE is not a significant mediator. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Do Sustainable Stocks Offer Diversification Benefits for Conventional Portfolios? An Empirical Analysis of Risk Spillovers and Dynamic Correlations
Sustainability 2017, 9(10), 1799; https://doi.org/10.3390/su9101799
Received: 14 August 2017 / Revised: 27 September 2017 / Accepted: 28 September 2017 / Published: 4 October 2017
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Abstract
This paper explores the potential diversification benefits of socially responsible investments for conventional stock portfolios by examining the risk spillovers and dynamic correlations between conventional and sustainability stock indexes from a number of regions. We observe significant unidirectional volatility transmissions from conventional to
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This paper explores the potential diversification benefits of socially responsible investments for conventional stock portfolios by examining the risk spillovers and dynamic correlations between conventional and sustainability stock indexes from a number of regions. We observe significant unidirectional volatility transmissions from conventional to sustainable equities, suggesting that the criteria applied for socially responsible investments do not necessarily shield these securities from common market shocks. While significant dynamic correlations are observed between sustainable and conventional stocks, particularly in Europe, the analysis of both in- and out-of-sample dynamic portfolios suggests that supplementing conventional stock portfolios with sustainable counterparts improves the risk/return profile of stock portfolios in all regions. The findings overall suggest that sustainable investments can indeed provide diversification gains for conventional stock portfolios globally. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Volatility Spillovers and Causality of Carbon Emissions, Oil and Coal Spot and Futures for the EU and USA
Sustainability 2017, 9(10), 1789; https://doi.org/10.3390/su9101789
Received: 28 July 2017 / Revised: 14 September 2017 / Accepted: 19 September 2017 / Published: 2 October 2017
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Abstract
Recent research shows that the efforts to limit climate change should focus on reducing the emissions of carbon dioxide over other greenhouse gases or air pollutants. Many countries are paying substantial attention to carbon emissions to improve air quality and public health. The
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Recent research shows that the efforts to limit climate change should focus on reducing the emissions of carbon dioxide over other greenhouse gases or air pollutants. Many countries are paying substantial attention to carbon emissions to improve air quality and public health. The largest source of carbon emissions from human activities in some countries in Europe and elsewhere is from burning fossil fuels for electricity, heat, and transportation. The prices of fuel and carbon emissions can influence each other. Owing to the importance of carbon emissions and their connection to fossil fuels, and the possibility of [1] Granger (1980) causality in spot and futures prices, returns, and volatility of carbon emissions, crude oil and coal have recently become very important research topics. For the USA, daily spot and futures prices are available for crude oil and coal, but there are no daily futures prices for carbon emissions. For the European Union (EU), there are no daily spot prices for coal or carbon emissions, but there are daily futures prices for crude oil, coal and carbon emissions. For this reason, daily prices will be used to analyse Granger causality and volatility spillovers in spot and futures prices of carbon emissions, crude oil, and coal. As the estimators are based on quasi-maximum likelihood estimators (QMLE) under the incorrect assumption of a normal distribution, we modify the likelihood ratio (LR) test to a quasi-likelihood ratio test (QLR) to test the multivariate conditional volatility Diagonal BEKK model, which estimates and tests volatility spillovers, and has valid regularity conditions and asymptotic properties, against the alternative Full BEKK model, which also estimates volatility spillovers, but has valid regularity conditions and asymptotic properties only under the null hypothesis of zero off-diagonal elements. Dynamic hedging strategies by using optimal hedge ratios are suggested to analyse market fluctuations in the spot and futures returns and volatility of carbon emissions, crude oil, and coal prices. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Risk Measurement and Risk Modelling Using Applications of Vine Copulas
Sustainability 2017, 9(10), 1762; https://doi.org/10.3390/su9101762
Received: 8 August 2017 / Revised: 10 September 2017 / Accepted: 13 September 2017 / Published: 29 September 2017
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Abstract
This paper features an application of Regular Vine copulas which are a novel and recently developed statistical and mathematical tool which can be applied in the assessment of composite financial risk. Copula-based dependence modelling is a popular tool in financial applications, but is
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This paper features an application of Regular Vine copulas which are a novel and recently developed statistical and mathematical tool which can be applied in the assessment of composite financial risk. Copula-based dependence modelling is a popular tool in financial applications, but is usually applied to pairs of securities. By contrast, Vine copulas provide greater flexibility and permit the modelling of complex dependency patterns using the rich variety of bivariate copulas which may be arranged and analysed in a tree structure to explore multiple dependencies. The paper features the use of Regular Vine copulas in an analysis of the co-dependencies of 10 major European Stock Markets, as represented by individual market indices and the composite STOXX 50 index. The sample runs from 2005 to the end of 2013 to permit an exploration of how correlations change indifferent economic circumstances using three different sample periods: pre-GFC (January 2005–July 2007), GFC (July 2007– September 2009), and post-GFC periods (September 2009–December 2013). The empirical results suggest that the dependencies change in a complex manner, and are subject to change in different economic circumstances. One of the attractions of this approach to risk modelling is the flexibility in the choice of distributions used to model co-dependencies. The practical application of Regular Vine metrics is demonstrated via an example of the calculation of the VaR of a portfolio made up of the indices. Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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Open AccessArticle Adoption of Falsified Medical Products in a Low-Income Country: Empirical Evidence for Suriname
Sustainability 2017, 9(10), 1732; https://doi.org/10.3390/su9101732
Received: 10 August 2017 / Revised: 13 September 2017 / Accepted: 19 September 2017 / Published: 26 September 2017
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Abstract
Based on detailed shipping figures for Suriname’s main harbour in Paramaribo, we estimate the total shipments (in kilograms) of original and falsified medical products for 1996–2008 across five product categories. Using various time series techniques and diffusion models, we document that total cumulative
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Based on detailed shipping figures for Suriname’s main harbour in Paramaribo, we estimate the total shipments (in kilograms) of original and falsified medical products for 1996–2008 across five product categories. Using various time series techniques and diffusion models, we document that total cumulative shipments of falsified products make about 40% of total shipments. We observe that there are apparently two distinct sets of consumers for original and for falsified products. Subsequently, we survey more than 300 citizens of Suriname from various demographics and ask questions about their potential adoption of falsified medicines. We find that income, age, and family size have no correlation, while the way people are insured does. Hence, the two sets of consumers can roughly be identified and clear-cut policy suggestions are presented. “The World Health Organization (WHO) estimates that up to 1% of medicines available in the developed world is likely to be counterfeited. This figure rises to 10% globally, although in some developing countries they estimate one third of medicines are counterfeit” (Various internet sites consulted January 2010 and the best estimate we have). Full article
(This article belongs to the Special Issue Risk Measures with Applications in Finance and Economics)
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