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on Risk Management |
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Issue of 2006‒11‒04
four papers chosen by |
| By: | Goderis,Benedikt; Marsh,Ian W.; Vall Castello,Judith; Wagner,Wolf (Tilburg University, Center for Economic Research) |
| Abstract: | One of the most important recent innovations in financial markets has been the development of credit derivative products that allow banks to more actively manage their credit portfolios than ever before. We analyze the effect that access to these markets has had on the lending behavior of a sample of banks, using a sample of banks that have not accessed these markets as a control group. We find that banks that adopt advanced credit risk management techniques (proxied by the issuance of at least one collateralized loan obligation) experience a permanent increase in their target loan levels of around 50%. Partial adjustment to this target, however, means that the impact on actual loan levels is spread over several years. Our findings confirm the general efficiency enhancing implications of new risk management techniques in a world with frictions suggested in the theoretical literature. |
| Keywords: | credit risk transfer;risk management;bank lending |
| JEL: | G21 G31 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:2006100&r=rmg |
| By: | Olli Castrén (Corresponding address: European Central Bank, Kaiserstrasse 29, 60311 Frankfurt am Main, Germany.); Trevor Fitzpatrick; Matthias Sydow |
| Abstract: | We combine the dynamic dividend-discount model with an accounting-based vector autoregression framework that allows for a decomposition of EU banks'stock returns to cash-flow and expected return news components. The main findings are that while the bulk of the variability of EU banks'stock returns is due to cash-flow shocks, the expected return shocks are relatively more important for larger than for smaller banks. Moroever, variables used in the literature as cash-flow proxies explain a higher share of the cash-flow component of the total excess returns for smaller than for larger EU banks. This suggests that large banks could be more prone to market wide news and events - that in the literature are associated with the expected return news component - as opposed to the bank-specific news, typically assumed to be incorporated in the cash-flow component. JEL Classification: C33, G12, G21. |
| Keywords: | Bank stock return predictability, return decomposition, panel VAR estimation, cash-flow news. |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:ecb:ecbwps:20060677&r=rmg |
| By: | J. L. Ford, Wee Ching Pok and S. Poshakwale |
| Abstract: | Employing a bivariate GARCH(1,1) process for spot and futures markets returns, this paper determines the structure of the variance-covariance matrix in the BEKK model. Daily data from December 1995 to April 2001 are used for estimation. The differing structures, dynamic, diagonal and constant, are used to obtain hedging ratios which are then used to determine the variance reduction (and expected utility levels) that the alternative ratios produce. This is also accomplished for three sub-periods which accommodate the currency crisis period in Malaysia. Observations from April 2001 to July 2001 are used to evaluate the relative merits of the alternative hedging strategies in forecasting futures returns in Malaysia. |
| Date: | 2006–01 |
| URL: | http://d.repec.org/n?u=RePEc:bir:birmec:06-08&r=rmg |
| By: | Elisa Luciano; Elena Vigna |
| Abstract: | In this paper we use doubly stochastic processes (or Cox processes) in order to model the random evolution of mortality of an individual. These processes have been widely used in the credit risk literature in modelling default arrival, and in this context have proved to be quite flexible, especially when the intensity process is of the affne class. We investigate the applicability of time-homogeneous a±ne processes in describing the individual's intensity of mortality and the mortality trend, as well as in forecasting it. We calibrate them to the UK population. Calibrations suggest that, in spite of their popularity in the financial context, mean reverting time-homogeneous processes are less suitable for describing the death intensity of individuals than non mean reverting processes. Among the latter, affne processes whose determin- istic part increases exponentially seem to be appropriate. They are natural generalizations of the Gompertz law. Stress analysis and analytical results indicate that increasing the randomness of the intensity process for a given cohort results in improvements in survivorship. Mortality forecasts and their comparison with experienced mortality rates provide further encour- aging evidence in favour of non mean reverting processes. The mortality trend is evidenced through the evolution over time of the parameters and through the intensity simulation for di®erent gener- ations. |
| Keywords: | doubly stochastic processes (Cox processes), affne processes, stochastic mortality, mortality forecasting. |
| JEL: | G22 J11 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:cca:wpaper:30&r=rmg |