Risks, Volume 6, Issue 4

Policymakers in developing and emerging countries are facing higher risk that is related to natural disasters in comparison to developed ones because of persistent problem of supply-side bottleneck for disaster insurance. Additionally, lower insuranc...

Credibility theory is used widely in group health and casualty insurance. However, it is generally not used in individual life and annuity business. With the introduction of principle-based reserving (PBR), which relies more heavily on company-specif...

A risk-return association under normal market conditions can be conventional positive (risk-averse) or “paradoxical” negative (risk seeking). This study has the objective to investigate whether such an association is stable across market...

We enhance the modelling and risk assessment of sovereign bond spreads by taking into account quantitative information gained from macro-economic news sentiment. We investigate sovereign bonds spreads of five European countries and improve the predic...

In both financial theory and practice, Value-at-risk (VaR) has become the predominant risk measure in the last two decades. Nevertheless, there is a lively and controverse on-going discussion about possible alternatives. Against this background, our...

The aim of this paper is to carry out a closed tool to estimate the one-year volatility of the claims reserve, calculated through the generalized linear models (GLM), notably the overdispersed- Poisson model. Up to now, this one-year volatility has b...

Effects of seasonal affective disorder (SAD) are explored on several selected Central and South East European markets in this study for the period 2010–2018. Both return and risk sensitivities on the SAD effect are examined for 11 markets in to...

Scientific discussions have emphasized that the main problem with the current deposit insurance system is that the current system does not evaluate the risks that banks assume to calculate the deposit insurance premiums in many countries of the Europ...

We develop a government debt management model to study the optimal debt ceiling when the ability of the government to generate primary surpluses to reduce the debt ratio is limited. We succeed in finding a solution for the optimal debt ceiling. We st...

The financial crises which occurred in the last several decades have demonstrated the significant impact of market structural breaks on firms’ credit behavior. To incorporate the impact of market structural break into the analysis of firms&rsqu...

In this paper, the risk model with constant interest based on an entrance process is investigated. Under the assumptions that the entrance process is a renewal process and the claims sizes satisfy a certain dependence structure, which belong to the d...

In risk theory, risks are often modeled by risk measures which allow quantifying the risks and estimating their possible outcomes. Risk measures rely on measure theory, where the risks are assumed to be random variables with some distribution functio...

In recent times, investing in volatile security increases the risk of losses and reduces gains. Many traders who depend on these risks indulge in multiple volatility procedures to inform their trading strategies. We explore two models to measure the...

This study utilizes the seven bivariate generalized autoregressive conditional heteroskedasticity (GARCH) models to forecast the out-of-sample value-at-risk (VaR) of 21 stock portfolios and seven currency-stock portfolios with three weight combinatio...

In our model, private actors with interbank cash flows similar to, but more general than that by Carmona et al. (2013) borrow from the non-banking financial sector at a certain interest rate, controlled by the central bank, and invest in risky assets...

The informal constraints that arise from the national culture in which a firm resides have a pervasive impact on managerial decision making and corporate credit risk, which in turn impacts on corporate ratings and rating changes. In some cultures, fi...

This paper studies the peer-to-peer lending and loan application processing of LendingClub. We tried to reproduce the existing loan application processing algorithm and find features used in this process. Loan application processing is considered a b...

Risk management policy in agriculture has become particularly prominent nowadays, considering the evolution of the Common Agricultural Policy (CAP) and climate change. Moreover, the Word Trade Organization places constraints on it. In this context, (...

We present closed-form solutions to the perpetual American dividend-paying put and call option pricing problems in two extensions of the Black–Merton–Scholes model with random dividends under full and partial information. We assume that t...

Stocks are riskier than bonds. This causes a risk premium for stocks. That the size of this premium, however, seems to be larger than risk aversion alone can explain the so-called “equity premium puzzle”. One possible explanation is the inclusion of...

Portfolio weights solely based on risk avoid estimation errors from the sample mean, but they are still affected from the misspecification in the sample covariance matrix. To solve this problem, we shrink the covariance matrix towards the Identity, t...

The variance of stock returns is decomposed based on a conditional Fama–French three-factor model instead of its unconditional counterpart. Using time-varying alpha and betas in this model, it is evident that four additional risk terms must be...

Mortality forecasting has always been a target of study by academics and practitioners. Since the introduction and rising significance of securitization of risk in mortality and longevity, more in-depth studies regarding mortality have been carried o...

We propose a Monte Carlo simulation method to generate stress tests by VaR scenarios under Solvency II for dependent risks on the basis of observed data. This is of particular interest for the construction of Internal Models. The approach is based on...

There has been much discussion in the literature about how central measures of equity risk such as standard deviation fail to account for extreme tail risk of equities. Similarly, parametric measures of value at risk (VaR) may also fail to account fo...

This study examines empirically the volatility spillover effects between the RMB foreign exchange markets and the stock markets by employing daily returns of the Chinese RMB exchange rates and the stock markets in China and Japan during the period in...

In this paper, the following research problem was addressed: Is DEA (Data Envelopment Analysis) method a suitable alternative to Altman model in predicting the risk of bankruptcy? Based on the above-mentioned research problem, we formulated the aim o...

The objective of this research is to evaluate the influence on hedging decisions of a realistic set of transaction costs which are largely stochastic. The stochastic nature of some transaction costs (such as margin calls) means that their exact value...

Based on suitable left-truncated or censored data, two flexible classes of M-estimations of Weibull tail coefficient are proposed with two additional parameters bounding the impact of extreme contamination. Asymptotic normality with $\sqrt{n}$ -rate of...

Addressing the volatility spillovers of agricultural commodities is important for at least two reasons. First, for the last several years, the volatility of agricultural commodity prices seems to have increased. Second, according to the Food and Agri...

The objective of the study is to perform corporate distress prediction for an emerging economy, such as India, where bankruptcy details of firms are not available. Exhaustive panel dataset extracted from Capital IQ has been employed for the purpose....

This paper studies a Pareto-optimal reinsurance contract in the presence of negative statistical dependence between the insurance claim and the random recovery rate. In the context of symmetric information model and asymmetric information model, we i...

In this paper, we propose a clustering procedure of financial time series according to the coefficient of weak lower-tail maximal dependence (WLTMD). Due to the potential asymmetry of the matrix of WLTMD coefficients, the clustering procedure is base...

The paper analyzes the relationship between the most popular cryptocurrencies and a range of selected fiat currencies, in order to identify any pattern and/or causality between the series. Cryptocurrencies are a hot topic in Finance due to their stri...

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 r...

In this paper, a dual risk model under constant force of interest is considered. The ruin probability in this model is shown to satisfy an integro-differential equation, which can then be written as an integral equation. Using the collocation method,...

The chain ladder method is a popular technique to estimate the future reserves needed to handle claims that are not fully settled. Since the predictions of the aggregate portfolio (consisting of different subportfolios) do not need to be equal to the...

The aim of this paper is to analyze the relation between maturity structure, sovereign bond yields and sovereign risk in the Economic and Monetary Union for the period of 1990–2013. The results confirm the existence of an inverse relationship b...

A mean-reverting model is often used to capture asset price movements fluctuating around its equilibrium. A common strategy trading such mean-reverting asset is to buy low and sell high. However, determining these key levels in practice is extremely...

In this document, we examine the effects of the age process on aggregate discounted claims by studying the conditional raw and joint moments, the moment generating function and the distribution function of the increments of compound renewal sums with...

This paper examines how the size of the rolling window, and the frequency used in moving average (MA) trading strategies, affects financial performance when risk is measured. We use the MA rule for market timing, that is, for when to buy stocks and w...

We introduce tools to capture the dynamics of three different pathways, in which the synchronization of human decision-making could lead to turbulent periods and contagion phenomena in financial markets. The first pathway is caused when stock market...