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21 pages, 2152 KiB

Open AccessArticle

Use of Neural Networks to Accommodate Seasonal Fluctuations When Equalizing Time Series for the CZK/RMB Exchange Rate

by Zuzana Rowland, George Lazaroiu and Ivana Podhorská

Risks 2021, 9(1), 1; https://doi.org/10.3390/risks9010001 - 22 Dec 2020

Cited by 31 | Viewed by 4072

The global nature of the Czech economy means that quantitative knowledge of the influence of the exchange rate provides useful information for all participants in the international economy. Systematic and academic research show that the issue of estimating the Czech crown/Chinese yuan exchange [...] Read more.

The global nature of the Czech economy means that quantitative knowledge of the influence of the exchange rate provides useful information for all participants in the international economy. Systematic and academic research show that the issue of estimating the Czech crown/Chinese yuan exchange rate, with consideration for seasonal fluctuations, has yet to be dealt with in detail. The aim of this contribution is to present a methodology based on neural networks that takes into consideration seasonal fluctuations when equalizing time series by using the Czech crown and Chinese yuan as examples. The analysis was conducted using daily information on the Czech crown/Chinese yuan exchange rate over a period of more than nine years. This is the equivalent of 3303 data inputs. Statistica software, version 12 by Dell Inc. was used to process the input data and, subsequently, to generate multi-layer perceptron networks and radial basis function neural networks. Two versions of neural structures were produced for regression purposes, the second of which used seasonal fluctuations as a categorical variable–year, month, day of the month and week—when the value was measured. All the generated and retained networks had the ability to equalize the analyzed time series, although the second variant demonstrated higher efficiency. The results indicate that additional variables help the equalized time series to retain order and precision. Of further interest is the finding that multi-layer perceptron networks are more efficient than radial basis function neural networks. Full article

(This article belongs to the Special Issue Quantitative Methods in Economics and Finance)

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14 pages, 344 KiB

Open AccessArticle

Determining Economic Security of a Business Based on Valuation of Intangible Assets according to the International Valuation Standards (IVS)

by Dmitrii Rodionov, Olesya Perepechko and Olga Nadezhina

Risks 2020, 8(4), 110; https://doi.org/10.3390/risks8040110 - 20 Oct 2020

Cited by 8 | Viewed by 3735

Abstract

This work considered the economic security of an enterprise with regard to the valuation of intangible assets according to the International Valuation Standards (IVS). This study is essential due to a growing number of companies with intangible assets (trademarks, patents, know-how, etc.) as [...] Read more.

This work considered the economic security of an enterprise with regard to the valuation of intangible assets according to the International Valuation Standards (IVS). This study is essential due to a growing number of companies with intangible assets (trademarks, patents, know-how, etc.) as their main value. This study included analysis of the impact created by the value of intangible assets and intellectual property on company capitalization and economic security plus a regression model. An algorithm was developed to determine the economic security of a business based on the valuation of intangible assets according to the IVS. The suggested algorithm can allow a company to manage its intangible assets effectively using the IVS, which, in turn, will provide the required level of economic security for further development and achievement of strategic goals by the business entity. Full article

(This article belongs to the Special Issue Quantitative Methods in Economics and Finance)

19 pages, 841 KiB

Open AccessArticle

A Note on Simulation Pricing of π-Options

by Zbigniew Palmowski and Tomasz Serafin

Risks 2020, 8(3), 90; https://doi.org/10.3390/risks8030090 - 28 Aug 2020

Cited by 1 | Viewed by 2790

Abstract

In this work, we adapt a Monte Carlo algorithm introduced by Broadie and Glasserman in 1997 to price a

π

-option. This method is based on the simulated price tree that comes from discretization and replication of possible trajectories of the underlying asset’s [...] Read more.

In this work, we adapt a Monte Carlo algorithm introduced by Broadie and Glasserman in 1997 to price a

π

-option. This method is based on the simulated price tree that comes from discretization and replication of possible trajectories of the underlying asset’s price. As a result, this algorithm produces the lower and the upper bounds that converge to the true price with the increasing depth of the tree. Under specific parametrization, this

π

-option is related to relative maximum drawdown and can be used in the real market environment to protect a portfolio against volatile and unexpected price drops. We also provide some numerical analysis. Full article

(This article belongs to the Special Issue Quantitative Methods in Economics and Finance)

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16 pages, 1149 KiB

Open AccessArticle

Modelling Australian Dollar Volatility at Multiple Horizons with High-Frequency Data

by Long Hai Vo and Duc Hong Vo

Risks 2020, 8(3), 89; https://doi.org/10.3390/risks8030089 - 26 Aug 2020

Cited by 1 | Viewed by 3402

Abstract

Long-range dependency of the volatility of exchange-rate time series plays a crucial role in the evaluation of exchange-rate risks, in particular for the commodity currencies. The Australian dollar is currently holding the fifth rank in the global top 10 most frequently traded currencies. [...] Read more.

Long-range dependency of the volatility of exchange-rate time series plays a crucial role in the evaluation of exchange-rate risks, in particular for the commodity currencies. The Australian dollar is currently holding the fifth rank in the global top 10 most frequently traded currencies. The popularity of the Aussie dollar among currency traders belongs to the so-called three G’s—Geology, Geography and Government policy. The Australian economy is largely driven by commodities. The strength of the Australian dollar is counter-cyclical relative to other currencies and ties proximately to the geographical, commercial linkage with Asia and the commodity cycle. As such, we consider that the Australian dollar presents strong characteristics of the commodity currency. In this study, we provide an examination of the Australian dollar–US dollar rates. For the period from 18:05, 7th August 2019 to 9:25, 16th September 2019 with a total of 8481 observations, a wavelet-based approach that allows for modelling long-memory characteristics of this currency pair at different trading horizons is used in our analysis. Findings from our analysis indicate that long-range dependence in volatility is observed and it is persistent across horizons. However, this long-range dependence in volatility is most prominent at the horizon longer than daily. Policy implications have emerged based on the findings of this paper in relation to the important determinant of volatility dynamics, which can be incorporated in optimal trading strategies and policy implications. Full article

(This article belongs to the Special Issue Quantitative Methods in Economics and Finance)

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20 pages, 475 KiB

Open AccessArticle

A Raroc Valuation Scheme for Loans and Its Application in Loan Origination

by Bernd Engelmann and Ha Pham

Risks 2020, 8(2), 63; https://doi.org/10.3390/risks8020063 - 10 Jun 2020

Cited by 2 | Viewed by 6875

Abstract

In this article, a risk-adjusted return on capital (RAROC) valuation scheme for loans is derived. The critical assumption throughout the article is that no market information on a borrower’s credit quality like bond or CDS (Credit Default Swap) spreads is available. Therefore, market-based [...] Read more.

In this article, a risk-adjusted return on capital (RAROC) valuation scheme for loans is derived. The critical assumption throughout the article is that no market information on a borrower’s credit quality like bond or CDS (Credit Default Swap) spreads is available. Therefore, market-based approaches are not applicable, and an alternative combining market and statistical information is needed. The valuation scheme aims to derive the individual cost components of a loan which facilitates the allocation to a bank’s operational units. After its introduction, a theoretical analysis of the scheme linking the level of interest rates and borrower default probabilities shows that a bank should only originate a loan, when the interest rate a borrower is willing to accept is inside the profitability range for this client. This range depends on a bank’s internal profitability target and is always a finite interval only or could even be empty if a borrower’s credit quality is too low. Aside from analyzing the theoretical properties of the scheme, we show how it can be directly applied in the daily loan origination process of a bank. Full article

(This article belongs to the Special Issue Quantitative Methods in Economics and Finance)

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21 pages, 2027 KiB

Open AccessFeature PaperEditor’s ChoiceArticle

Heads and Tails of Earnings Management: Quantitative Analysis in Emerging Countries

by Pavol Durana, Katarina Valaskova, Darina Chlebikova, Vladislav Krastev and Irina Atanasova

Risks 2020, 8(2), 57; https://doi.org/10.3390/risks8020057 - 1 Jun 2020

Cited by 15 | Viewed by 4785

Abstract

Earnings management is a globally used tool for long-term profitable enterprises and for the apparatus of reduction of bankruptcy risk in developed countries. This phenomenon belongs to the integral and fundamental part of their business finance. However, this has still been lax in [...] Read more.

Earnings management is a globally used tool for long-term profitable enterprises and for the apparatus of reduction of bankruptcy risk in developed countries. This phenomenon belongs to the integral and fundamental part of their business finance. However, this has still been lax in emerging countries. The models of detections of the existence of earnings management are based on discretionary accrual. The goal of this article is to detect the existence of earnings management in emerging countries by times series analysis. This econometric investigation uses the observations of earnings before interest and taxes of 1089 Slovak enterprises and 1421 Bulgarian enterprises in financial modelling. Our findings confirm the significant existence of earnings management in both analyzed countries, based on a quantitative analysis of unit root and stationarity. The managerial activities are purposeful, which is proven by the existence of no stationarity in the time series and a clear occurrence of the unit root. In addition, the results highlight the year 2014 as a significant milestone of change in the development of earnings management in both countries, based on homogeneity analyses. These facts identify significant parallels between Slovak and Bulgarian economics and business finance. Full article

(This article belongs to the Special Issue Quantitative Methods in Economics and Finance)

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23 pages, 2544 KiB

Open AccessArticle

Application of Diffusion Models in the Analysis of Financial Markets: Evidence on Exchange Traded Funds in Europe

by Adam Marszk and Ewa Lechman

Risks 2020, 8(1), 18; https://doi.org/10.3390/risks8010018 - 14 Feb 2020

Cited by 4 | Viewed by 5504

Abstract

Exchange traded funds (ETFs) are financial innovations that may be considered as a part of the index financial instruments category, together with stock index derivatives. The aim of this paper is to explore the trajectories and formulates predictions regarding the spread of ETFs [...] Read more.

Exchange traded funds (ETFs) are financial innovations that may be considered as a part of the index financial instruments category, together with stock index derivatives. The aim of this paper is to explore the trajectories and formulates predictions regarding the spread of ETFs on the financial markets in six European countries. It demonstrates ETFs’ development trajectories with regard to stock index futures and options that may be considered as their substitutes, e.g., in risk management. In this paper, we use mathematical models of the diffusion of innovation that allow unveiling the evolutionary patterns of turnover of ETFs; the time span of the analysis is 2004–2015, i.e., the period of dynamic changes on the European ETF markets. Such an approach has so far rarely been applied in this field of research. Our findings indicate that the development of ETF markets has been strongest in Italy and France and weaker in the other countries, especially Poland and Hungary. The results highlight significant differences among European countries and prove that diffusion has not taken place in all the cases; there are also considerable differences in the predicted development paths. Full article

(This article belongs to the Special Issue Quantitative Methods in Economics and Finance)

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11 pages, 309 KiB

Open AccessArticle

Omnichannel Banking Economy

by Sergey A. Vasiliev and Eugene R. Serov

Risks 2019, 7(4), 115; https://doi.org/10.3390/risks7040115 - 7 Nov 2019

Cited by 11 | Viewed by 5155

Abstract

In modern market conditions, customers who purchase banking products require a high level of service. In particular, they require continuous real-time service with the ability to instantly “switch” between service channels. The article analyzed the economic component of the omnichannel sales management system [...] Read more.

In modern market conditions, customers who purchase banking products require a high level of service. In particular, they require continuous real-time service with the ability to instantly “switch” between service channels. The article analyzed the economic component of the omnichannel sales management system in banking. The existing barriers to introducing omnichannels to the practice of banking management have been identified. The features of the calculation of individual elements of the cost of sales at various stages of the life cycle of sales (sales funnel) are considered. An economic–mathematical model for managing the cost and profitability of sales by selecting the optimal omnichannel chains was proposed. The omnichannel model of interaction with customers enables banks to simultaneously achieve several key goals of increasing their own business efficiency: increase sales while reducing their cost and improving the quality of customer service. The model can be used not only in banking, but also in other forms of retail business where it is possible to collect detailed statistics and build a factor analysis of conversion through a sales funnel. Full article

(This article belongs to the Special Issue Quantitative Methods in Economics and Finance)

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