Topic
Financial risk
About: Financial risk is a research topic. Over the lifetime, 11899 publications have been published within this topic receiving 231404 citations. The topic is also known as: economic risk.
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TL;DR: In this paper, the authors introduce three quantitative measures of model risk when choosing a particular reference model within a given class: the absolute measure, the relative measure and the local measure.
55 citations
TL;DR: In this paper, the authors propose a two-step market evaluation procedure, which preserves the structure of standard evaluation techniques and has many other appealing properties, such as the ability to combine actuarial techniques with methods from mathematical finance.
Abstract: We consider evaluation methods for payoffs with an inherent financial risk as encountered for instance for portfolios held by pension funds and insurance companies. Pricing such payoffs in a way consistent to market prices typically involves combining actuarial techniques with methods from mathematical finance. We propose to extend standard actuarial principles by a new market-consistent evaluation procedure which we call “two-step market evaluation.” This procedure preserves the structure of standard evaluation techniques and has many other appealing properties. We give a complete axiomatic characterization for two-step market evaluations. We show further that in a dynamic setting with continuous stock prices every evaluation which is time-consistent and market-consistent is a two-step market evaluation. We also give characterization results and examples in terms of g-expectations in a Brownian-Poisson setting.
55 citations
TL;DR: In this article, the authors reviewed the literature and developed propositions relating specific environmental factors to the propensity of franchisors to use master international franchising, and they proposed that the economic potential and level of corruption are low; and when the competitive intensity, demand variability, franchise knowledge, masculinity and individualism in society, geographical and cultural distance, country risk, and the level of legal protection are high.
Abstract: Master international franchising is among the fastest growing methods for international franchisors to expand abroad because this method involves minimal financial risk and a quick go‐to‐market strategy. This article reviews the extant literature and develops propositions relating specific environmental factors to the propensity of franchisors to use master international franchising. We propose that master international franchising is more likely when the economic potential and level of corruption are low; and when the competitive intensity, demand variability, franchise knowledge, masculinity and individualism in society, geographical and cultural distance, country risk, and level of legal protection are high
55 citations
TL;DR: In this paper, the authors argue that the remarkable success of today's financial risk management methods should be attributed primarily to their communicative and organizational usefulness and less to the accuracy of the results they produced.
Abstract: Is the growth of modern financial risk management a result of the accuracy and reliability of risk models? This paper argues that the remarkable success of today's financial risk management methods should be attributed primarily to their communicative and organizational usefulness and less to the accuracy of the results they produced. This paper traces the intertwined historical paths of financial risk management and financial derivatives markets. Spanning from the late 1960s to the early 1990s, the paper analyses the social, political and organizational factors that underpinned the exponential success of one of today's leading risk management methodologies, the applications based on the Black-Scholes-Merton options pricing model. Using primary documents and interviews, the paper shows how financial risk management became part of central market practices and gained reputation among the different organisational market participants (trading firms, the options clearinghouse and the securities regulator). Ultimately, the events in the aftermath of the market crash of October 1987 showed that the practical usefulness of financial risk management methods overshadowed the fact that when financial risk management was critically needed the risk model was inaccurate.
55 citations
Posted Content•
TL;DR: A recent survey of the literature on the behavior of international mutual funds at the micro-level has expanded our knowledge about the drivers of portfolio flows and the mechanisms behind the transmission of financial shocks across countries.
Abstract: Gaining a better understanding of the behavior of international investors is key for informing the debate about the optimal response to capital flows and about reforms to the international financial architecture. In this context, recent research on the behavior of international mutual funds at the micro level has expanded our knowledge about the drivers of portfolio flows and the mechanisms behind the transmission of financial shocks across countries. This paper provides a brief survey of this literature, with a focus on the empirical evidence for emerging markets. Overall, the behavior of international mutual funds is complex and overly simplistic characterizations are misleading. However, there is broad-based evidence for momentum trading among funds. Moreover, funds tend to avoid opaque markets and assets, and this behavior becomes more pronounced during volatile times. Portfolio rebalancing mechanisms are clearly important in explaining contagion patterns, even in the absence of common macroeconomic fundamentals. From a surveillance point of view, this implies that monitoring the exposures of large investors at a micro level is crucial to assess vulnerabilities.
55 citations