nep-rmg New Economics Papers
on Risk Management
Issue of 2008‒08‒14
three papers chosen by
Stan Miles
Thompson Rivers University

  1. The Effects of Derivatives on Firm Risk and Value By Bartram, Söhnke M.; Brown, Gregory W.; Conrad, Jennifer
  2. Fast and accurate simulation of differently seasoned loan defaults in a Merton-style framework in discrete time By Varsanyi, Zoltan
  3. Mensuração do Risco Sistêmico no Setor Bancário com Variáveis Contábeis e Econômicas By Lucio Rodrigues Capelletto; Eliseu Martins; Luiz João Corrar

  1. By: Bartram, Söhnke M.; Brown, Gregory W.; Conrad, Jennifer
    Abstract: Using a sample of 6,888 non-financial firms from 47 countries, we examine the effect of derivative use on firms’ risk measures and value. We control for endogeneity by matching users and non-users on the basis of their propensity to hedge. We also use a new technique to estimate the effect of omitted variable bias on our inferences. We find strong evidence that the use of financial derivatives reduces both total risk and systematic risk. The effect of derivative use on firm value is positive but weak, and is more sensitive to endogeneity and omitted variable concerns. This increased sensitivity could account for the mixed evidence in the literature on the effect of hedging on firm value.
    Keywords: Derivatives; risk management; hedging; international finance
    JEL: F4 F3 G3
    Date: 2006–10–01
  2. By: Varsanyi, Zoltan
    Abstract: In this paper I present a method for the simulation of the default of such loans that have two important properties: they are seasoned – maybe even being at different points of the seasoning curve – and they evolve in an asset-value based framework. This latter model allows us to introduce correlation between the loan defaults. Although these two features are widely considered in modelling, linking them into one single (simulation) framework might not be that common. However, the most important merit of this paper is showing a fast and accurate simulation algorithm for the asset values.
    Keywords: credit risk; simulation
    JEL: C15
    Date: 2008–08
  3. By: Lucio Rodrigues Capelletto; Eliseu Martins; Luiz João Corrar
    Abstract: The systemic risk in the financial system has been a constant concern for the international institutions and supervisory authorities. The financial crises occurred in several countries have caused significant economic damages and high social costs. The objective of this study is to measure the systemic risk of the banking system, utilizing accounting and economic variables together. Through the volatilities of economic variables, like interest rate and foreign exchange rate, and accounting variables, representatives of credit quality and liquidity, it was possible to build indicators comprising risk factors. These indicators were submitted to logistic regression analysis, in order to test the statistic significance of them, and to verify the existence of a model to evaluate the probability of any banking system be classified as susceptible, or not, to financial crises. The results exposed the existence of accounting and risk indicators capable to discriminate banking systems according to the risk level. The accounting and economic variables most associated to financial crises are related to credit quality, earnings, and interest rate level. All of indicators composed by these variables showed to be relevant in the classification process. Confirming that, the equations resulted in correct classification above 90%.
    Date: 2008–07

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