Research

27 pages, 631 KiB

Open AccessArticle

Financial Integration and International Dynamics: The Role of Volatility Shocks

by Aidi Tang

Mathematics 2023, 11(23), 4742; https://doi.org/10.3390/math11234742 - 23 Nov 2023

Viewed by 620

This study investigates the impact of financial integration on international dynamics from the perspective of volatility shocks. By incorporating time-varying volatilities, recursive preferences, and a global bank into the IRBC model, it illustrates that volatility shocks trigger precautionary saving incentives, but the specific [...] Read more.

This study investigates the impact of financial integration on international dynamics from the perspective of volatility shocks. By incorporating time-varying volatilities, recursive preferences, and a global bank into the IRBC model, it illustrates that volatility shocks trigger precautionary saving incentives, but the specific effects vary based on the type of shock. Financial integration facilitates international capital flows and leads to an unequal distribution of international bank loans between two countries, resulting in greater divergence in their business cycles in the presence of productivity volatilities. In contrast, countries with higher financial integration experience more synchronized business cycles, due to simultaneous fluctuations in the international financial market, ultimately yielding greater synchronization in the face of financial volatilities. Disregarding volatility shocks leads to underestimating the impact of financial integration on the comovement of business cycles across countries. Furthermore, welfare analysis also indicates that financial markets play a crucial role in enhancing social welfare, regardless of the type of volatility. Full article

(This article belongs to the Special Issue Advanced Research in Mathematical Economics and Financial Modelling)

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35 pages, 3058 KiB

Open AccessArticle

The Analysis of Risk Measurement and Association in China’s Financial Sector Using the Tail Risk Spillover Network

by Can-Zhong Yao, Ze-Kun Zhang and Yan-Li Li

Mathematics 2023, 11(11), 2574; https://doi.org/10.3390/math11112574 - 04 Jun 2023

Viewed by 1322

Abstract

This study focused on analyzing the complexities and risk spillovers that arise among financial institutions due to the development of financial markets. The research employed the conditional value at risk (CoVaR) methodology to quantify the extent of tail risk spillover and constructed a [...] Read more.

This study focused on analyzing the complexities and risk spillovers that arise among financial institutions due to the development of financial markets. The research employed the conditional value at risk (CoVaR) methodology to quantify the extent of tail risk spillover and constructed a risk spillover network encompassing Chinese financial institutions. The study further investigated the characteristics, transmission paths, and dynamic evolution of this network under different risk conditions. The empirical findings of this research highlighted several important insights. First, financial institutions play distinct roles in the risk spillover process, with the securities and banking sectors as risk exporters and the insurance and diversified financial sectors as risk takers. The closest risk spillover relationships were observed between banking and insurance and between securities and diversified financial sectors. Second, in high-risk scenarios, there is significant intrasectoral risk transmission between banks and the diversified financial sector, as well as dual-sectoral risk contagion between banks and securities, with the most-common transmission occurring between diversified financial and securities sectors. Finally, the securities sector acts as the pivotal node for risk spillovers, being the main transmitter of intersectoral risks. The formation and evolution of risk spillover networks are influenced by endogenous mechanisms, in particular the convergence effect. Full article

(This article belongs to the Special Issue Advanced Research in Mathematical Economics and Financial Modelling)

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16 pages, 702 KiB

Open AccessArticle

Market Volatility Spillover, Network Diffusion, and Financial Systemic Risk Management: Financial Modeling and Empirical Study

by Sun Meng and Yan Chen

Mathematics 2023, 11(6), 1396; https://doi.org/10.3390/math11061396 - 13 Mar 2023

Cited by 2 | Viewed by 2090

Abstract

With the accelerated pace of financial globalization and the gradual increase in linkages among financial markets, correctly identifying and describing the risk spillover and network diffusion in the financial system is extremely important for the prevention and management of systemic risk. Based on [...] Read more.

With the accelerated pace of financial globalization and the gradual increase in linkages among financial markets, correctly identifying and describing the risk spillover and network diffusion in the financial system is extremely important for the prevention and management of systemic risk. Based on this, this paper takes the equity markets of 17 countries around the world from 2007 to 2022 as the research object, measures the volatility spillover effect of global financial markets using R-Vine Copula and the DY spillover index, constructs the volatility spillover network of global financial markets, discovers the spillover and diffusion pattern of global financial market risks, and provides relevant suggestions for systemic risk management. It is found that (1) there are certain aggregation characteristics in the network diffusion of global financial market volatility spillover; (2) developed European countries such as the Netherlands, France, the UK, and Germany are at the center of the network and have a strong influence; (3) Asian countries such as China, Japan, and India are at the periphery of the network; and (4) shocks from crisis events enhance the global financial market volatility spillover effect. Based on the above findings, effective prevention of global financial market risk volatility spillover and network diffusion and reduction in systemic risk need to be carried out in two ways. First, by focusing on the financial markets of key countries in the network, such as the Netherlands, the UK, France, and Germany. The second approach is to mitigate the uneven development in global financial markets and reduce the high correlation among them. Full article

(This article belongs to the Special Issue Advanced Research in Mathematical Economics and Financial Modelling)

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25 pages, 5652 KiB

Open AccessArticle

Financial Risk Measurement and Spatial Spillover Effects Based on an Imported Financial Risk Network: Evidence from Countries along the Belt and Road

by Shaowei Chen, Long Guo and Weike Zhang

Mathematics 2023, 11(6), 1349; https://doi.org/10.3390/math11061349 - 10 Mar 2023

Cited by 1 | Viewed by 1365

Abstract

Using the financial market data of 35 countries along the Belt and Road (B&R), this paper constructs an imported financial risk network based on the conditional expected shortfall (CoES) to measure the systemic financial risk of the countries along the B&R. Furthermore, complex [...] Read more.

Using the financial market data of 35 countries along the Belt and Road (B&R), this paper constructs an imported financial risk network based on the conditional expected shortfall (CoES) to measure the systemic financial risk of the countries along the B&R. Furthermore, complex network theory is combined with spatial econometrics to construct a spatial, financial network panel model to measure the spatial spillover effects of imported financial risks and further explore the macroeconomic influences on systemic financial risks. The results show that among the countries along the B&R, the level of systemic financial risk in the European region is higher than that in the Asian region from the imported risk perspective. The spatial spillover effect of financial risk and the spatial spillover effect from the imported risk perspective have time-varying characteristics, with the spatial spillover effect increasing significantly during crisis periods. In addition, indicators of the three dimensions of economic openness, the institutional environment, and the external policy environment all have significant effects on systemic financial risk, but the effects differ across regions and periods. Full article

(This article belongs to the Special Issue Advanced Research in Mathematical Economics and Financial Modelling)

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18 pages, 1355 KiB

Open AccessArticle

Continuous Wavelet Transform of Time-Frequency Analysis Technique to Capture the Dynamic Hedging Ability of Precious Metals

by Chi-Wei Su, Kai-Hua Wang, Oana-Ramona Lobonţ and Meng Qin

Mathematics 2023, 11(5), 1186; https://doi.org/10.3390/math11051186 - 28 Feb 2023

Cited by 5 | Viewed by 1382

Abstract

Exploring the hedging ability of precious metals through a novel perspective is crucial for better investment. This investigation applies the wavelet technique to study the complicated correlation between global economic policy uncertainty (GEPU) and the prices of precious metals. The empirical outcomes suggest [...] Read more.

Exploring the hedging ability of precious metals through a novel perspective is crucial for better investment. This investigation applies the wavelet technique to study the complicated correlation between global economic policy uncertainty (GEPU) and the prices of precious metals. The empirical outcomes suggest that GEPU exerts positive influences on the prices of precious metals, indicating that precious metals could hedge against global economic policy uncertainty, which is supported by the inter-temporal capital asset pricing model (ICAPM). Among them, gold is better for long-term investment than silver, which is more suitable for the short run in recent years, while platinum’s hedging ability is virtually non-existent after the global trade wars. Conversely, the positive influences from gold price on GEPU underline that the gold market plays a prospective role in the situation of economic policies worldwide, which does not exist in the silver market. Besides, the effects of platinum price on GEPU change from positive to negative, suggesting that the underlying cause of its forward-looking effect on GEPU alters from the investment value to the industrial one. In the context of the increasing instability of global economic policies, the above conclusions could offer significant lessons to both investors and governments. Full article

(This article belongs to the Special Issue Advanced Research in Mathematical Economics and Financial Modelling)

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25 pages, 2718 KiB

Open AccessArticle

Advanced Modelling of the Interplay between Public Governance and Digital Transformation: New Empirical Evidence from Structural Equation Modelling and Gaussian and Mixed-Markov Graphical Models

by Andreea-Florentina Crăciun, Alexandra-Mădălina Țăran, Grațiela Georgiana Noja, Marilen Gabriel Pirtea and Raluca-Ioana Răcătăian

Mathematics 2023, 11(5), 1168; https://doi.org/10.3390/math11051168 - 27 Feb 2023

Cited by 7 | Viewed by 1968

Abstract

The research conducted in this paper aims to appraise the interlinkages between public governance and digital transformation at the level of the European Union. We employ two advanced approaches to modelling longitudinal data compiled at the level of the EU-27 Member States during [...] Read more.

The research conducted in this paper aims to appraise the interlinkages between public governance and digital transformation at the level of the European Union. We employ two advanced approaches to modelling longitudinal data compiled at the level of the EU-27 Member States during the 2010–2021 period, namely, structural equation modelling and Gaussian and Mixed-Markov graphical models. The main results indicate positive impacts on government effectiveness arise from the human capital involved in complex activities that engage the use of digital services, e-government users, and integration of digital technologies, and the effect of demands and supplies of digital public services using open data. This further supports the government’s capabilities in enforcing regulations and policies to control corruption and sustain the achievement of digital skills, at least at a basic level, by the entire society. Moreover, good perceptions and a higher degree of confidence in the rules of law have a positive influence on the need for connectivity of digital services, especially the supply side of fixed and mobile broadband. Lastly, a relevant impact of regulatory quality is identified in the digital connectivity of broadband infrastructure, which is enclosed by the public governance representative indicators under the influence of a stronger integration of digitalisation. Full article

(This article belongs to the Special Issue Advanced Research in Mathematical Economics and Financial Modelling)

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13 pages, 710 KiB

Open AccessArticle

Derivation of the Fractional Fokker–Planck Equation for Stable Lévy with Financial Applications

by Reem Abdullah Aljethi and Adem Kılıçman

Mathematics 2023, 11(5), 1102; https://doi.org/10.3390/math11051102 - 22 Feb 2023

Viewed by 1058

Abstract

This paper aims to propose a generalized fractional Fokker–Planck equation based on a stable Lévy stochastic process. To develop the general fractional equation, we will use the Lévy process rather than the Brownian motion. Due to the Lévy process, this fractional equation can [...] Read more.

This paper aims to propose a generalized fractional Fokker–Planck equation based on a stable Lévy stochastic process. To develop the general fractional equation, we will use the Lévy process rather than the Brownian motion. Due to the Lévy process, this fractional equation can provide a better description of heavy tails and skewness. The analytical solution is chosen to solve the fractional equation and is expressed using the H-function to demonstrate the indicator entropy production rate. We model market data using a stable distribution to demonstrate the relationships between the tails and the new fractional Fokker–Planck model, as well as develop an R code that can be used to draw figures from real data. Full article

(This article belongs to the Special Issue Advanced Research in Mathematical Economics and Financial Modelling)

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21 pages, 5145 KiB

Open AccessArticle

Option Pricing Using LSTM: A Perspective of Realized Skewness

by Yan Liu and Xiong Zhang

Mathematics 2023, 11(2), 314; https://doi.org/10.3390/math11020314 - 07 Jan 2023

Cited by 1 | Viewed by 2744

Abstract

Deep learning has drawn great attention in the financial field due to its powerful ability in nonlinear fitting, especially in the studies of asset pricing. In this paper, we proposed a long short-term memory option pricing model with realized skewness by fully considering [...] Read more.

Deep learning has drawn great attention in the financial field due to its powerful ability in nonlinear fitting, especially in the studies of asset pricing. In this paper, we proposed a long short-term memory option pricing model with realized skewness by fully considering the asymmetry of asset return in emerging markets. It was applied to price the ETF50 options of China. In order to emphasize the improvement of this model, a comparison with a parametric method, such as Black-Scholes (BS), and machine learning methods, such as support vector machine (SVM), random forests and recurrent neural network (RNN), was conducted. Moreover, we also took the characteristic of heavy tail into consideration and studied the effect of realized kurtosis on pricing to prove the robustness of the skewness. The empirical results indicate that realized skewness significantly improves the pricing performance of LSTM among moneyness states except for in-the-money call options. Specifically, the LSTM model with realized skewness outperforms the classical method and other machine learning methods in all metrics. Full article

(This article belongs to the Special Issue Advanced Research in Mathematical Economics and Financial Modelling)

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