Showing papers on "Financial risk published in 1993"

Risk Management and Construction

Abstract: List of figures List of tables Forward Introduction The aim of the book Part 1 -- Putting risk into perspective: Introduction Risk and reward go hand in hand Risk and contruction Risk -- another four letter word AGAP (All goes according to plan) and WHIF (What happens if) The people, the process and the risks Clients of the industry Have clientsa needs changed? Privately financed infrastructure projects What do clients want? Investment in property Consultatns and risk Contracting and risk Part II The background to risk and uncertainty: Introduction Defining risk and uncertainty The uncertainty of life and construction projects Dynamic and static risk A threat and a challenge Some fo ther basic rules for risk taking Risk a Place your waterline lowa The risky shift phenomenon -- what happens when groups make decisions The risk of not risking Risk styles Removing ignorance -- and risk Probability Converting uncertainty to risk Decision--making in the construction industry Intuition Bias and intuition Experts and experience Rules of thumb Making a model Reacting to information Looking at the past to forecast the future Types of information Building a decision model to solve a problem Part III The risk management system: Introduction Developing a risk management framework Risk identification Sources of risk Dependent and independent risk Risk classification Types of risk Impact of risk The risk hierarchy Risk and the general environment The market/industry risk The company risk Project risk and individual risk Consequence of risk Risk reponse Risk retention Risk reduction Risk transfer Risk avoidance Risk attitude Summarising risk management Risk management Part IV Some of the tools and techniques of risk management: Introduction Seeing the big picutre and tthe detail Decision--making techniques The risk premium Risk--adjusted discount rate Subjective probabilities Decision analysis Algorithms Means--end chain Decision matrix Strategy Decision trees Bayesian theory Stochastic decision tree analysis Multi--attribute value theory Specify the utility function Case study Summary Sensitivity analysis Spiider Diagram Monte Carlo simulation Portofolio theory The aplication of portfolio analysis in the construction industry Stochastic dominance Cumulative distributions of illustrative portfolios Conclusion Part V Utility and risk attitude: Introduction Risk exposure Utility theory Expected monetary value Payoff matrix The utility function General types of characteristics of utility functions The difference between EUV and EMV in practice The use of utility theory in construction Basic principle for the aplication of the theory Part VI Risks and the construction project -- money, time and technical risks: Introduction Money and delivery sequence Investment and development sequence Cost considerations Operational/revenue considerations The influence of taxation Value considerations Design and construction sequence Time delivery sequence Contractors and specialist contractors Technical delivery sequence A case study of the technical risks faced by the building surveyor Part VII Sensitivity analysis, breakeven analysis, and scenario analysis: Sensitivity analysis Breakeven analysis Scenario analysis Sensitivity analysis -- an application to life cycle costing Part VIII Risk analysis using Monte Carlo simulation: Probability analysis -- extending the sesitivity technique How it works Using Monte Carlo simulation in the cost planning of a building Estimating and price prediction an overview of current practice Cost planning and risk analysis Interdependence of items Risk analysis using probabilities Risk analysis using Monte Carlo simulation Considering some probability distributions Comon distriubtion types Uniform distribution Triangular distribution Normal distribution A step by step approach to Monte Carlo simulation Using Monte Carlo simulation on a live project The result Questions and Answers Part IX Constracts and risk: Disagreement and conflict The purpose of the contract The fundamental risks -- liability and responsibility Transferring and allocating the risk in the contracts The principles of control -- the theory The contractual links Risk avoidance by warrannties and collateral warranties The types of contract Contracts and risk tactics Part X A case study of an oil platform: A practical application of resourced schedule risk analysis Background The model Comparison with deterministic plan Data Weather Project variables Processing of data Confidence in the data Initial results Conclusion References and bibliography Index

Debt, Financial Fragility, and Systemic Risk

Abstract: Debt financial fragility in the corporate sector financial fragility in the personal sector economic effects of financial fragility the economic theory of systemic risk financial instability 1966-90 systemic risk and financial market structure then further financial crises conclusion - themes and prospects.

Strategic Risk Taking: A Framework for Risk Management

Abstract: Front FlapIn business and investing, risk has traditionally been viewed negatively: investors and companies can lose money due to risk and therefore we typically penalize companies for taking risks. That's why most books on risk management focus strictly on hedging or mitigating risk.But the enterprise's relationship with risk should be far more nuanced. Great companies become great because they seek out and exploit intelligent risks, not because they avoid all risk. Strategic Risk Taking: A Framework for Risk Management is the first book to take this broader view, encompassing both risk hedging at one end of the spectrum and strategic risk taking on the other.World-renowned financial pioneer Aswath Damodarani??one of BusinessWeek's top 12 business school professorsi??is singularly well positioned to take this strategic view. Here, Damodaran helps you separate good risk (opportunities) from bad risk (threats), showing how to utilize the former while protecting yourself against the latter. He introduces powerful financial tools for evaluating risk, and demonstrates how to draw on other disciplines to make these tools even more effective.Simply put, Damodaran has written the first book that helps you use risk to increase firm value, drive higher growth and returns, and create real competitive advantage.·i? i? Risk: the history and the psychologyThe non-financial realities you must understand to successfully manage risk·i? i? Risk assessment: from the basics to the cutting edgeRisk Adjusted Value, probabilistic approaches, Value at Risk, and more·i? i? Utilizing the power of real optionsExtending option pricing models to reflect the potential upside of risk exposure·i? i? Risk management: the big pictureIntegrating traditional finance with corporate strategyi??and using risk strategicallyBack FlapAbout the AuthorAswath Damodaran, Professor of Finance at NYU's Stern School of Business, has been profiled in BusinessWeek as one of the United States' top twelve business school professors. His researchinterests include valuation, portfolio management, and applied corporate finance. He is the author of Damodaran on Valuation; Investment Valuation; The Dark Side of Valuation; Corporate Finance: Theory and Practice; Applied Corporate Finance; and most recently, Investment Fables.Damodaran has published in The Journal of Financial and Quantitative Analysis, The Journal of Finance, The Journal of Financial Economics, and The Review of Financial Studies.Back CoverBeyond Traditional Hedging: How to Use Risk Management Financial Techniques Strategically!·How to determine which risks to ignore, which to protect against, and which to actively exploit·By Aswath Damodaran, leading finance authority and one of BusinessWeek's top 12 business school professors·For every corporate finance executive, manager, analyst, consultant, researcher, and studentIn recent years, risk management has been defined as merely eliminating or reducingrisk exposure. Companies are learning today that is far too narrow and constraining a definition. Risk, exploited judiciously, is absolutely central to business success. In Strategic Risk Taking: A Framework for Risk Management, Aswath Damodaran covers both sides of the risk equation, offering a complete framework for maximizing profit by limiting some risks and exploiting others.Damodaran presents a thorough and insightful review of the state-of-the-art in risk measurement, hedging, and mitigation. He covers a broad spectrum of risk assessment tools, including risk adjusted value, scenario analysis, decision trees, VAR, and real options. But Damodaran goes far beyond other treatments of the subject, helping you decide when to deliberately increase exposure to certain risks, and clearly assess the potential dangers and payoffs of doing so.http://pages.stern.nyu.edu/~adamodar/

Dimensions of risk perception for financial and health risks

Abstract: This study of 29 MBA students compares two models of risk perception for both financial and health risk stimuli. The first, inspired by Luce and Weber's Conjoint Expected Risk (CER) model, uses five dimensions: probability of gain, loss and status quo, and expected benefit and harm. The second, inspired by the Slovic et al. psychometric model, employs seven dimensions: voluntariness, dread, control, knowledge, catastrophic potential, novelty, and equity. The CER-type model provided a better fit for most subjects and stimuli. Adding the psychological risk dimensions from the Slovic et al. model explained only modestly more variance. Relationships between the dimensions of the two models are described and the construction of a hybrid model explored.

The New Product Process in Financial Services: Strategy for Success

Abstract: How companies orchestrate the activities surrounding the development and launch of a new product or service has been shown to have a critical impact on new service performance. Most service companies, including those in the industrial financial sector, have little in the way of a highly developed new service programme. Reports the results of a major empirical investigation of 106 new industrial financial services where the factors which define the new service development process were the primary focus of study. The findings indicate that six basic factors, comprising the technical activities required for design and launch and the type of corporate environments that nurture success, define the service development function for new industrial financial services. Four factors, including the quality of execution of the up‐front activities and of the launch programme, an expert‐driven process and, in particular, a supportive and high‐involvement corporate culture, were shown to have a critical impact on new ser...

Portfolio Theory and Nonprofit Financial Stability

Abstract: This article models and tests for the factors that influence financial predictability for a nonprofit organization. Financial portfolio theory is used to model a nonprofit organization's optimal combination of revenue streams in order to minimize financial risk. The optimal combination of funding from government and other sources depends on the variance and covariance between the sources of revenue. Data from nonprofit foster care organizations in New York State are used to show that nonprofit organizations that are more dependent on government funding as a source of revenue have more predictable revenues.

An empirical analysis of preferences for financial risk: further evidence on the Friedman-Savage model

Abstract: (1993) An Empirical Analysis of Preferences for Financial Risk: Further Evidence on the Friedman–Savage Model Journal of Post Keynesian Economics: Vol 16, No 2, pp 197-204

Interaction Effects of Country of Origin with Branding, Price, and Perceived Performance Risk

Abstract: In an experiment, products from less developed countries received lower evaluations than those from industrialized countries under all tested conditions. Product country of origin interacted with other variables, so that evaluation differences between LDCs and ICs was significantly reduced when the product carried a famous brand name or low financial risk. Product performance risk did not interact with origin.

Financial Structures and Economic Development

Abstract: This paper examines the relationship between the evolution of financial services and long-run economic growth. Liquidity risk, productivity risk, transactions costs. and information gathering and resource coordination costs create incentives for the emergence of financial contracts and institutions. The level of income per capital public policies, and legal codes determine the provision of financial services aid the types of financial structures that provide these services. The resultant financial structures can alter investment incentives, such that the steady state growth rate of per capita output increases.

Market Development Using New Products and New Customers: A Role for Perceived Risk

Abstract: Analyses the breakfast cereal market as a basis on which to conduct a study of risk in new product development. Argues that the main alternatives for increased consumer demand, namely, product development, converting non‐users and encouraging existing users to use more, have associated risks in the consumer′s mind. The hypothesis that non‐purchases will perceive more risk than purchasers was tested and accepted; financial risks were particularly important. Suggests that a reduction of these risks through changes in the marketing mix might be more cost effective than developing new products to stimulate consumer demand, since breakfast cereal consumers are highly brand loyal with 48 per cent never changing their cereal and 69 per cent saying that they were not really bothered about trying a new cereal. Non‐purchasers were found to consider low price and trial sizes as more useful risk reducers than purchasers. Unfortunately, consumers stated that the most useful ways to reduce risk for a new product was pa...

The demand for trade credit: an investigation of motives for trade credit use by small businesses

Abstract: Trade credit--credit extended by a seller who does not require immediate payment for delivery of a product--is an important source of funds for business customers. In 1987, such credit accounted for about 15 percent of the liabilities of nonfarm nonfinancial businesses in the United States, approximately the same percentage of liabilities as these firms' nonmortgage loans from banks. Trade credit apparently is especially important for small businesses: In the same year, it accounted for about 20 percent of small firms' liabilities. ; Businesses that choose to finance their purchases through trade credit have several options for payment: They may pay the supplier promptly and in so doing receive a cash discount; wait until the bill's due date and consequently pay the interest cost implicit in forgoing the cash discount, at a rate frequently higher than the rate on credit from institutional lenders; or pay late, after the bill's due date, and thereby risk incurring additional costs in the form of explicit interest charges or penalties, or both. Although trade credit is an important source of funds for small businesses, little has been known about the reasons business customers use it. ; Theoreticians have linked the use of trade credit to a transaction motive--a desire to realize economies in cash management--and to a financing motive--use of trade credit because credit from other sources, particularly from financial institutions, is limited. These theories are not mutually exclusive, yet no earlier study has integrated the two in a single theoretical or empirical model. Previous studies have focused on one or the other of the motives, and available empirical evidence on trade credit use, especially by small businesses, is limited. ; This paper presents a model of trade credit demand that incorporates both the transaction and financing theories of trade credit use. The model relates characteristics of the firm to trade credit use associated with either the transaction or the financing motive. One important feature of the model is a link between trade credit use and credit rationing. This link permits an empirical test for the presence of rationing in markets for business credit. ; The model of trade credit demand was used to analyze small businesses' decisions about using trade credit at all, about making late payments, and about the amount of trade credit to use. The data came from the National Survey of Small Business Finances, a one-time survey of a nationally representative sample of about 3,400 businesses having 500 or fewer employees that were operating at the end of December 1987. (The survey was conducted in 1988-89 for the Board of Governors of the Federal Reserve System and the U.S. Small Business Administration.) ; The results suggest that both the transaction and financing motives explain small businesses' use of trade credit. Characteristics of firms associated with the transaction motive--notably, a relatively large volume of purchases and relatively great variability in the timing of delivery of the purchases--were significantly related to a greater probability of using trade credit and a greater dollar amount of trade credit outstanding. Similarly, firm characteristics associated with a financing motive--relatively higher business and financial risk, among others--were significantly related not only to a greater probability of using trade credit and a greater dollar amount of trade credit outstanding, but also to a greater probability that the firm made some percentage of its payments on trade credit after the due date. These results are consistent with the predictions of theoretical models of transaction and financing motives for trade credit use. ; The results suggest that the financing motive does not stem from the substitutability of trade credit and institutional credit. Instead, firms having relatively large amounts of short-term institutional credit were also the largest users of trade credit. This finding is consistent with the hypothesis that small businesses are subject to credit rationing by financial institutions: Firms with already-high levels of debt from financial institutions, facing limitations on additional institutional credit, turn to trade credit as a source of additional credit despite the high implicit interest cost. ; Also investigated using the model of trade credit demand was the relative importance of the transaction and financing motives. The size of the financing component of trade credit demand ranged from about two-fifths to one-half the estimated size of the transaction component. Clearly, each motive accounts for a sizable portion of total trade credit demand. Thus, both the transaction motive and the financing motive appear to be economically significant determinants of trade credit use.

Management of Investments

Abstract: Part 1: The characteristics of securities: risk and return debt securities equity and asset-backed securities Part 2: The market place: security markets security markets indexes regulation of the securities markets taxes Part 3: Introduction to financial analysis: sources of financial information analysis of financial statements the interest-rate risk factor the default risk factor bond selection Part 5: Investing in stocks: common stock analysis earnings analysis Part 6: Other risk factors: the market risk factor the purchasing power risk factor and the industry risk factor the management risk factor and other risk factors Part 7: Pulling things together and making decisions with APT: making buy-sell decisions arbitrage pricing theory (APT) Part 8 The behaviour of stock prices technical analysis choosing between technical analysis or fundamental analysis Part 9: Other investments: options, warrants and convertibles futures contracts investing in real assets Part 10: Portfolio management: capital market theory international diversification investments performance evaluation

The Essentials of Financial Risk Management

Abstract: "New financial instruments are not created simply because someone on Wall Street believes that it would be 'fun' to introduce an instrument with more 'bells and whistles' than existing instruments. The demand for new instruments is driven by the needs of borrowers and investors based on their asset/liability management situation, regulatory constraints (if any), financial accounting considerations, and tax considerations."' Frank J. Fabozzi and Franco Modigliani

Global Interdependence and Regional Development: Business Linkages and Corporate Governance in a World of Financial Risk

Abstract: The paper begins with a case study of CORPORATION X, a small global corporation which specializes in the production and sale of brand-name textile and apparel goods. CORPORATION X is a real company but emphasis is placed on the logical implications of its structure and organization for the theory of the firm and regional development in the western Pacific. The entrepreneurial and coordination functions of CORPORATION X are located at its centre but it purchases many of its design, production, transportation and wholesale/retail services from agents and subcontractors around the globe. CORPORATION X is made-up of an extended chain-of-links; it is, in effect, a spatially elongated production system. The paper suggests that the company's commitment to any subcontracting source (and hence the region in which that subcontractor is located) depends upon the relative costs and prices of a subcontractor (compared to other opportunities for the provision of comparable services), the relative contribution of a subcontractor to total value (compared to other parts in the chain-of-links) and the temporal dependence of the firm on the subcontractor given the nature of the service provided. Also considered are two limits to globalization. One limit is the problem of corporate governance. The second limit is financial risk assessment and management.

The Internationalisation of the Pakistani Stock Market: An Empirical Investigation

Abstract: A recent major development in international finance has been the growing interest of the portfolio managers in emerging stock markets. The interest in the emerging markets has been accelerated by global trends towards the opening up of economies and financial markets, the free flow of capital and the privatisation of financial institutions. The integration of emerging markets globally has been hindered so far as, besides other several factors, participating in emerging securities markets has posed serious problems for international investors. "These markets lack the depth, regulatory framework, and structural safeguards that characterise equity markets in the 'United States and in a few industrial countries," [Medewitz et al. (1991)]. A peculiar risk of investing in the emerging markets, besides the currency, political and investment risk, is the "risk arising out of the development stage of emerging markets," [Errunza and Losq (1987)]. Compounding the difficulties for the international investor is the lack of information pertinent for making investment decisions. A study of emerging markets, therefore, becomes important in shedding light on the economic and institutional characteristics of these markets.

Corporate foreign exchange risk management: A study in decision making under uncertainty

Abstract: This paper examines the management of foreign exchange risk in multinational corporations in light of the conclusions of previous empirical and theoretical investigations into decision making under uncertainty. Cognitive perceptions of risk and uncertainty are shown to underlie the hedging decisions made by corporate treasury managers, which are often demonstrably sub-optimal in a Bayesian expected utility framework. The findings suggest that simple principal-agent approaches to explaining seemingly sub-optimal corporate risk management preferences are inadequate inasmuch as they fail to account for the markedly different perspectives on risk and uncertainty taken by financial economists (qua economists) and corporate financial risk managers.

Reducing financial risk in agroforestry planning: a case study in Costa Rica*

Abstract: We used fluctuations in net income from alternative cropping systems to assess the financial risk associated with an agroforestry system. Mean-variance analysis was used to derive a set of minimum-risk farm plans for a 15-hectare farm in Costa Rica. Monocultural coffee production provided the highest expected net income, but also had the greatest economic risk. As risk was reduced, the optimal agroforestry system diversified to include other cropping systems in addition to the coffee monoculture. Risk aversion was, however, accompanied by significant reductions in expected net income for the cropping systems studied. The inclusion of additional cropping systems whose net incomes are negatively correlated with the systems considered here could help reduce the economic risk facing rural agriculturalists in this region.

How do small firms make inventory accounting choices

Abstract: In the past, the attention of studies on inventory method choices has invariably been focused on large firms' motivations to use LIFO. Small firms' inventory accounting decisions are different from those of large firms due to the fact that there are differences in financial reporting considerations. This study examines small firms' inventory accounting choices from the perspective of three major factors (firm size, risk, and managerial ownership). It was found that firm size, financial risk, and the interaction effect between financial risk and business risk are significantly correlated with the LIFO choice for small firms.

Risk and Equity in Agricultural Cooperatives

Abstract: This research examines the effect of risk on the proportion of equity held by agricultural cooperatives. The measured components of risk are business risk and the financial risk that is dependent on the proportion of debt in the cooperative's capital structure. The empirical results indicate the proportion of equity is inversely related to financial risk and positively related to business risk. These risk effects are estimated to differ based on the commodity handled by the cooperative. No significant relation between the proportion of equity and whether or not the cooperative operates on a pooling basis is estimated.

Pricing guaranteed securities-linked life insurance under interest rate risk”, Actuarial Approach for Financial Risks, 3rd AFIR International Colloquium, vol. 1, Roma, 1993, p. 35-55.

Abstract: This paper analyses the problem of pricing an endowment policy in which the benefits are linked to the realization of a portfolio of securities and a minimum amount guaranteed is provided. Building on the model of BrennanSchwartz (4), (5) for the case of an all-equity reference fund, we extend it in order to account for interest-rate risk and show how to obtain a close-form solution for the single premium when the value of the reference fund follows a geometric brownian motion and an Ornstein-Uhlenbeck process is employed for the market force of interest. We then consider the case in which the reference fund is composed all by fixed-income securities. Employing both the Vasicek (18) and the Cox-Ingersoll-Ross (8) models for the term structure, we derive close-form solutions for the single premium. We also present some comparative statics results, and hint at other possible further extensions.

Profit and loss sharing in agriculture: An application of Islamic banking

Abstract: This study reviews profit and loss sharing instruments used in Islamic banking. It is argued that US financial intermediaries can use profit and loss sharing instruments to provide external equity capital needed to finance agricultural production. Such an innovation would help reduce financial risk in agriculture. © 1993 John Wiley & Sons, Inc.

Financial Risk Management: Fixed Income and Foreign Exchange

Abstract: Financial risk management : fixed income and foreign exchange , Financial risk management : fixed income and foreign exchange , کتابخانه دیجیتال و فن آوری اطلاعات دانشگاه امام صادق(ع)

Risk and Return: A Revisit Using Expected Returns

Abstract: This paper uses direct estimates of expected returns to examine the link between standard measures of financial risk and investor return requirements. The results show that systematic risk commands a significant positive risk premium, much larger than found using historical returns as proxies for expectations. Furthermore, there are nonlinearities in the relationship between risk and return. Finally, we show that expected returns and risk premiums in the equity markets change over time and that these changes are related to changes in interest rates on U.S. government obligations.

Government Risk-Bearing in the Financial Sector of a Capitalist Economy

Abstract: For many years, the potential costs of government risk-bearing attracted scant attention. The recent wave of depository institution failures has caused widespread concern about the government’s ability to regulate these entities and, more broadly, to control the financial risks it assumes. In the United States, these risks include 1. a federal safety net for depository institutions, comprising statutory deposit insurance and (occasionally subsidized) discount window lending; 2. government guarantees of private obligations, including pensions, brokerage accounts, and the “government-sponsored enterprises”1; 3. direct government lending to (among others) homeowners, farmers, small businesses, and students; and 4. extensive Federal Reserve payments services to private banks, which sometimes include extensions of substantial intraday credit.