Journal articles on the topic 'Counterparty risks'
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Kim, Hwa-Sung. "A Structural Model with Counterparty Risks." Journal of Derivatives and Quantitative Studies 18, no. 3 (August 31, 2010): 25–40. http://dx.doi.org/10.1108/jdqs-03-2010-b0002.
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The recent financial crisis has triggered more studies on counterparty risks. The theoretical research on credit risk with counterparty risks has been built based upon the reduced-form model. In contrast, this paper suggests a structural model where firm value can be reduced due to counterparty risks. After deriving a price formula for corporate bonds, we analyze the credit spreads of the corporate bonds. The effects of the counterparty risk on credit spreads are as follows: First, regardless of the level of the counterparty's credit rating, the credit spreads of a firm increase because of counterparty risks. Second, the lower the counterparty's credit rating, the stronger the impact of either the correlation between the two firms on credit spreads, or the coefficient of reduction in firm value due to counterparty risks on credit spreads. Third, compared with existing structural models, there are some cases in which the structural model with counterparty risks is more consistent with actual credit spreads. These cases depend upon the counterparty's credit rating.
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Trifonov, Yu V., and E. A. Fomina. "Enterprise Counterparty Risk Assessment Principles." Issues of Risk Analysis 19, no. 1 (February 22, 2022): 42–52. http://dx.doi.org/10.32686/1812-5220-2022-19-1-42-52.
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The purpose of this article is to describe in detail the principles of risk assessment of counterparties of enterprises and to analyze methods of minimizing risks when interacting with them. The risk assessment of counterparties is a section of the enterprise risk assessment system developed by the authors of the article on the full range of emerging risks, which provides for risk analysis using the developed tools used in assessing the effectiveness of both project and current activities of enterprises. The risk assessment system of counterparties is a detailed classification of risks of counterparties of enterprises, which includes fifteen risk subgroups, each of which is represented by a wide range of risks. Analysis of counterparty risks using the developed risk assessment system allows you to optimize interaction with problematic and potentially problematic counterparties of enterprises and, if necessary, exclude the conclusion of knowingly unprofitable contracts. The article materials can be used by enterprises when analyzing counterparties, both during the current interaction with existing counterparties, and planning the conclusion of contracts with new counterparties, as well as when developing risk assessment and management systems at enterprises. In addition, the materials of the article can be used by scientists in the course of studying the principles of conducting risk analysis of enterprises and all interested persons. In general, the application of the risk assessment system of counterparties, in particular, and the general risk assessment system and the developed tools allows to significantly optimize the risk assessment process of enterprises and significantly reduce the cost of analysis.
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Koltays, Andrey, Anton Konev, and Alexander Shelupanov. "Mathematical Model for Choosing Counterparty When Assessing Information Security Risks." Risks 9, no. 7 (July 13, 2021): 133. http://dx.doi.org/10.3390/risks9070133.
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The need to assess the risks of the trustworthiness of counterparties is increasing every year. The identification of increasing cases of unfair behavior among counterparties only confirms the relevance of this topic. The existing work in the field of information and economic security does not create a reasonable methodology that allows for a comprehensive study and an adequate assessment of a counterparty (for example, a developer company) in the field of software design and development. The purpose of this work is to assess the risks of a counterparty’s trustworthiness in the context of the digital transformation of the economy, which in turn will reduce the risk of offenses and crimes that constitute threats to the security of organizations. This article discusses the main methods used in the construction of a mathematical model for assessing the trustworthiness of a counterparty. The main difficulties in assessing the accuracy and completeness of the model are identified. The use of cross-validation to eliminate difficulties in building a model is described. The developed model, using machine learning methods, gives an accurate result with a small number of compared counterparties, which corresponds to the order of checking a counterparty in a real system. The results of calculations in this model show the possibility of using machine learning methods in assessing the risks of counterparty trustworthiness.
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CHEN, XINFU, PENG HE, JING LIU, and SHUAI ZHAO. "Mathematical analysis of a credit default swap with counterparty risks." European Journal of Applied Mathematics 31, no. 5 (September 9, 2019): 737–62. http://dx.doi.org/10.1017/s0956792519000226.
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A credit default swap (CDS) is an exchange of premium payments for a compensation for the occurrence of a credit event. Counterparty risks refer to defaults of parties holding CDS contracts. In this paper we develop a valuation/pricing model for a CDS subject to counterparty risks. Using the Cox–Ingersoll–Ross (CIR) model for interest rate and first arrival times of Poisson processes with variable intensities for the occurrences of credit default and counterparty defaults, we derive a mathematical formulation and make a full theoretical investigation. In addition, we develop a full theory for the corresponding infinite horizon problem and establish its connection with the asymptotic long expiry behaviour of finite horizon problem. Furthermore, we establish a connection between two major frameworks for default times: the structure model approach and the intensity model approach. We show that a solution of the structure model can be obtained as the limit of a sequence of solutions of intensity models. Regarded as an important theoretical development, we remove a constraint typically imposed on the parameters of the CIR model; that is, the well-posedness (existence, uniqueness and continuous dependence of parameters) of the mathematical model holds for any empirically calibrated parameters for the CIR model.
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Kang, Jangkoo, and Hwa-Sung Kim. "Pricing counterparty default risks: Applications to FRNs and vulnerable options." International Review of Financial Analysis 14, no. 3 (January 2005): 376–92. http://dx.doi.org/10.1016/j.irfa.2004.10.002.
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Zhi, Kangquan, Jie Guo, and Xiaosong Qian. "Basket Credit Derivative Pricing in a Markov Chain Model with Interacting Intensities." Mathematical Problems in Engineering 2020 (October 16, 2020): 1–17. http://dx.doi.org/10.1155/2020/5369879.
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In this paper, we propose a Markov chain model to price basket credit default swap (BCDS) and basket credit-linked note (BCLN) with counterparty and contagion risks. Suppose that the default intensity processes of reference entities and the counterparty are driven by a common external shock as well as defaults of other names in the contracts. The stochastic intensity of the external shock is a Cox process with jumps. We derive recursive formulas for the joint distribution of default times and obtain closed-form premium rates for BCDS and BCLN. Numerical experiments are performed to show how the correlated default risks may affect the premium rates.
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Candrayani, Yeli, and Asikum Wirataatmadja. "PENGARUH RESOURCES, COUNTERPARTY DAN WEATHER RISKS TERHADAP KETEPATAN WAKTU PENYELESAIAN PROYEK SERTA DAMPAKNYA TERHADAP PROJECT COST PERFORMANCE." JURNAL INFORMASI, PERPAJAKAN, AKUNTANSI, DAN KEUANGAN PUBLIK 10, no. 2 (May 10, 2019): 111. http://dx.doi.org/10.25105/jipak.v10i2.4552.
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<p class="Style1"><em>This research aims to prove the direct and indirect influence of resource, counterparty, and weather risks on the timeliness of projects completion and its </em><em>implications to the project costs performance by using path analysis so that can be seen </em><em>the percentage of each observed exogenous variables, namely resource, counterparty and weather risks against both endogcn variables namely the timeliness of project completion and the project costs performance. The results showed a direct effect of </em><em>variable resources against project costs performance and to the timeliness of the </em><em>project completion. Similarly, counterparty and weather risk showed a direct influence </em><em>on project cost performance but have no direct impact on the timeliness of project </em><em>completion. Further research showed an indirect positive influence between variable of </em><em>resources to the project cost performance through the timely completion of the project </em><em>while the counterparty and the weather did not reveal any indirect influence on the </em><em>project cost performance.</em></p>
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Zarhana, Rahayu. "Analysis of the Application of Waqf Core Principle in Risk Management Case Study: the Waqf Maintenance and Development Foundation of Pondok Modern Darussalam Gontor." Al-Awqaf: Jurnal Wakaf dan Ekonomi Islam 15, no. 2 (December 2, 2022): 44–60. http://dx.doi.org/10.47411/al-awqaf.vol15iss2.162.
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Abstract: This research was conducted to find out the factors that inhibit performance or work performance in the application of Waqf Core Principles in risk management at the Waqf Maintenance and Development Foundation of Pondok Modern Darussalam Gontor. This research uses qualitative research methods and descriptive approaches. The data collection technique used is triangulation which combines information from various data collection techniques and existing data sources. The results of this study showed that the risk factors that is identified to be possible risk are consisted of internal and external factors of the foundation. The application of Waqf Core Principles in risk management, consists of risk management, collection management, counterparty risk, disbursement management, problem waqf assets, provisions, and reserves, transactions with related parties, country and transfer risks, market risk, reputation and waqf asset loss risk, revenue/profit-loss sharing risk, disbursement risk, operational risk and shari’ah-compliant. Two of these regulatios, are counterparty risk, and country and transfer risks are not applicable to the foundation. The counterparty risk has not been applied because cash waqf has never occurred at the Waqf Maintenance and Development Foundation of Pondok Modern, The country and transfer risks due to the absence of assets involving two countries.
Keywords: Risk Management, Waqf Core Principles, Waqf.
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He, Taoshun. "Explicit Pricing Formulas for European Option with Asset Exposed to Double Defaults Risk." Discrete Dynamics in Nature and Society 2018 (June 25, 2018): 1–8. http://dx.doi.org/10.1155/2018/8362912.
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We derive analytical formulas for European call and put options on underlying assets that are exposed to double defaults risks which include exogenous counterparty default risk and endogenous default risk. The endogenous default risk leads the asset price to drop to zero and the exogenous counterparty default risk induces a drop in the asset price, but the asset can still be traded after this default time. A novel technique is developed to evaluate the European call and put options by first conditioning on the predefault and the postdefault time and then obtaining the unconditional analytic formulas for their price. We also compare the pricing results of our model with default-free option model and counterparty default risk option model.
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He, Taoshun. "Option Pricing for Path-Dependent Options with Assets Exposed to Multiple Defaults Risk." Discrete Dynamics in Nature and Society 2020 (February 12, 2020): 1–13. http://dx.doi.org/10.1155/2020/2418620.
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In the present paper, we derive analytical formulas for barrier and lookback options with underlying assets exposed to multiple defaults risks which include exogenous counterparty default risk and endogenous default risk. The endogenous default risk leads the asset price drop to zero and the exogenous counterparty default risk induces a drop in the asset price, but the asset can still be traded after this default time. An original technique is developed to valuate the barrier and lookback options by first conditioning on the predefault and the afterdefault time and then obtaining the unconditional analytic formulas for their price. We also compare the pricing results of our model with the default-free option model and exogenous counterparty default risk option model.
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León, Carlos, Ricardo Mariño, and Carlos Cadena. "Do central counterparties reduce counterparty and liquidity risk? Empirical results." Algorithmic Finance 9, no. 1-2 (August 24, 2021): 25–34. http://dx.doi.org/10.3233/af-200341.
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A central counterparty (CCP) interposes itself between buyers and sellers of financial contracts to extinguish their bilateral exposures. Therefore, central clearing and settlement through a CCP should affect how financial institutions engage in financial markets. Though, financial institutions’ interactions are difficult to observe and analyze. Based on a unique transaction dataset corresponding to the Colombian peso non-delivery forward market, this article compares—for the first time—networks of transactions agreed to be cleared and settled by the CCP with those to be cleared and settled bilaterally. Networks to be centrally cleared and settled show significantly higher connectivity and lower distances among financial institutions. This suggests that agreeing on central clearing and settlement reduces liquidity risk. After CCP interposition, exposure networks show significantly lower connectivity and higher distances, consistent with a reduction of counterparty risk. Consequently, evidence shows CCPs induce a change of behavior in financial institutions that emerges as two distinctive economic structures for the same market, which corresponds to CCP’s intended reduction of liquidity and counterparty risks.
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Gaibov, T. S. "Criteria for Classification of Risks of Project Financing in Оrder to Manage the Risks of Specialized Lending Portfolio." World of new economy 12, no. 2 (August 24, 2018): 58–65. http://dx.doi.org/10.26794/2220-6469-2018-12-2-58-65.
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In the article we analyzed international and Russian methodological approaches for classification of risk in project finance and identified crucial criteria which provide further framework for development of principles and management mechanism of specialized credit portfolio at commercial bank. Considering relevant literature and taking into account the main purpose of the study, the practical use of aggregation of project finance risk taxonomy was concluded and three groups of risk were proposed: product risk, counterparty risk and portfolio risk. For each group, it was highlighted list of significant risks all of which shall be subsequently integrated into overall assessment of risks’ concentration of specialized credit portfolio together with some management tools.
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Shrimali, Gireesh. "Financial Performance of Renewable and Fossil Power Sources in India." Sustainability 13, no. 5 (February 27, 2021): 2573. http://dx.doi.org/10.3390/su13052573.
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This paper seeks to study and compare the historical and present-day financial performance and risk profile of the renewable energy and fossil fuel power sectors. Our findings are as follows. First, renewable energy power portfolios have historically shown more attractive investment characteristics including, on average, 12% higher annual returns, 20% lower annual volatility and 61% higher risk-adjusted returns. Second, investors perceive renewable energy power investments to be less risky than fossil fuel power investments, with the expected returns on debt to the fossil fuel power sector is at least 80 basis points higher than for expected returns on debt for the renewable energy power sector. Third, the main risk factors driving the risk perception of both renewable energy and fossil fuels are counterparty, grid and financial risks; counterparty risk is the most significant risk by far, followed by grid risk and then financial sector risk. Our findings have significant implications for investments in these technologies in India.
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Khomenko, E. G. "Legal Framework for Clearing and Settlement in the Banking System of Russia." Actual Problems of Russian Law 17, no. 10 (August 24, 2022): 117–23. http://dx.doi.org/10.17803/1994-1471.2022.143.10.117-123.
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The paper analyzes the legal framework for the clearing system in the Russian Federation and its place in the system of cashless transactions and formulates the main characteristics of clearing. The distinctive features of the process are identified. It is noted that clearing is not a contract, but a set of consistently performed actions aimed at identifying and calculating the mutual obligations of the parties. It is important to mention the stages of clearing and settlement identified by the author that result in charging/crediting the payment clearing position as to the bank accounts of the settlement participants. The importance of clearing of wire transfers between banks participating in gross and clearing payment systems is emphasized. The advantages and disadvantages of clearing and settlement systems are noted. The author pays attention to the institution of the central counterparty, the central clearing counterparty and their functions in the framework of the settlement transaction between payers and recipients, the role of the central counterparty, the central clearing counterparty in minimizing the risks of defaults in payments.
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Lai, Yongzeng, Junmei Ma, Xuan Yang, and Xiaomei Zhang. "Semi-analytic pricing formulas for basket credit-linked notes with and without counterparty risks." Systems Science & Control Engineering 8, no. 1 (January 1, 2020): 576–604. http://dx.doi.org/10.1080/21642583.2020.1851804.
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Lin, Feng, Si-yuan Xie, and Jing-ping Yang. "Semi-analytical Formula for Pricing Bilateral Counterparty Risk of CDS with Correlated Credit Risks." Acta Mathematicae Applicatae Sinica, English Series 34, no. 2 (March 2018): 209–36. http://dx.doi.org/10.1007/s10255-018-0756-8.
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Niankara, Ibrahim, and Hassan Ismail Hassan. "Data for the spatiotemporal analysis of US global banks’ exposure to foreign counterparty risks." Data in Brief 25 (August 2019): 103964. http://dx.doi.org/10.1016/j.dib.2019.103964.
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Bychkova, S. M., and O. V. Shvets. "Digital Technologies: New Reality of Counterparty Reliability Analysis." Accounting. Analysis. Auditing 9, no. 5 (November 24, 2022): 43–55. http://dx.doi.org/10.26794/2408-9303-2022-9-5-43-55.
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The research carried the potential analysis for using digital tools to verify the due diligence of a counterparty out at the stage of pre-contractual interaction with the organization, which allows for reduced possible financial, legal, reputational and tax risks. When using specialized platforms and online services, it can reduce the expected time spent on such an assessment by preparing a comprehensive report that reflects the fundamental aspects of the activities of a potential business partner. The digital products presented on the market are able to provide a detailed analysis of the financial position of the audited economic entity, its legal status, business reputation and affiliation with other legal entities. The information obtained allows us to determine the vector of further cooperation. The aim of the work is to consider the possibility and prospects for the use of digital tools during the procedure of contractual due diligence, carried out by specialized organizations; the authors identified the primary advantages of using these technologies, which are to reduce the time spent on collecting and analyzing information about the counterparty and providing expanded access to various databases. The study used methods of synthesis, comparative and logical analysis. The practical significance of the research is because experts have been conducting the contractual due diligence procedure when deciding on the possibility of using a particular online service in their work can use the presented results of the comparative characteristics of the considered digital tools.
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Prorokowski, Lukas. "Depository banks under the Alternative Investment Fund Managers Directive (AIFMD)." Journal of Investment Compliance 15, no. 4 (October 28, 2014): 29–36. http://dx.doi.org/10.1108/joic-07-2014-0025.
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Purpose – This paper aims to investigate whether enhanced requirements result in the depositories exiting the business. Furthermore, this paper attempts to analyse prospective changes to the operating structures caused by the Alternative Investment Fund Managers Directive (AIFMD). Most importantly, this paper discusses the processes to evaluate and manage counterparty risk relating to prime brokers. AIFMD makes fundamental changes to the depository liability and managing counterparty risk by making a depository bank liable for any losses to investor assets, even those held within third-party custodians appointed by the depository. Depositories will also need to calculate the probability of default of their sub-custodians and use complex credit models to calculate any capital requirements under the fourth Capital Requirements Directive (CRD IV). Design/methodology/approach – This paper is based on an insightful secondary analysis of the AIFMD with practical implications drawn for depository banks. The analysis of this topical research has been broken down into the following sections: assessing and managing counterparty risk of prime brokers; insurance against defaults of prime brokers; and regulatory-driven challenges and changes to depository banks. Findings – The post-Lehman banking industry has realised that counterparty risk cannot be ignored. This has triggered heated debates among regulators and practitioners whereby any depository bank should clearly separate the assets of its clients from the depository assets and its own assets. This paper argues that the custodian services will witness consolidation with the big players remaining and small custodians forced to leave the business in light of the enhanced liabilities under the AIFMD. In addition to this, this paper has stressed that assessing counterparty risk should be supported by an insightful analysis of the culture of a prime broker; its legal, structural and regulatory safeguards; and quality of assets. Moreover, managing risks associated with prime brokers entails significant costs to depositories. Thus, depository banks are advised to factor these costs into their pricing models. Originality/value – Given the magnitude of recent regulatory initiatives and complex challenges faced by depositories, an important question arises whether depository banks would exit the business in light of the regulatory-induced liabilities. This paper addresses the aforementioned question and provides practical implications into managing emerging risks by depository banks. At this point, the majority of depositories are in a process of developing in-house solutions for managing risks related to prime brokers, and hence would benefit from practical insights into these processes that are provided in this paper.
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Borisova, Irina, and Olga Oleynik. "Specifics of Procedure of Integrity Assessment of a Design Company’s Counterparties for Export VAT Calculation." Regionalnaya ekonomika. Yug Rossii, no. 3 (October 2021): 142–50. http://dx.doi.org/10.15688/re.volsu.2021.3.13.
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The article presents the results of a study on the assessment procedure of counterparty integrity, which helps to determine the reliability and legal status of any involved contractors. The argument rests on the methods of system and institutional analysis, economic analysis of business operations, and comprehensive legal analysis of entrepreneurial operations. Relevance of the study consists in the theoretical and practical importance of efficient subcontractor management, as well as in the need of an engineering design company to establish a unified procedure for dealing with partners. The procedure of integrity assessment of counterparties (suppliers, subcontractors) of a design company includes some economic and legal techniques. Design companies use the counterparty integrity concept in verifying whether the value added tax on exports is computed correctly, whether the VAT refund (deduction) is justified, and whether the procurement of some works, services and commodities is economically reasonable. Verification of the physical existence of a counterparty and the authority of persons who sign contracts and issue letters of authorization is also provided. In contrast to existing verification methods, the approach used in this article allows choosing the best way to deal with international partners. Additional measures to disclose unfair practices of partners by means of a legal review of counterparty documents are developed. The article presents a tested form of reporting of counterparty negotiations. A set of measures for a detailed counterparty verification allows systematizing the procedure of integrity assessment of counterparties (suppliers, subcontractors) of a design company. The procedure and measures suggested in the paper will help design companies reduce their business risks.
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Харчева, Ирина Владимировна, Ирина Викторовна Макунина, and Елена Сергеевна Грушко. "ORGANIZATIONAL AND METHODOLOGICAL ASPECTS OF DUE DILIGENCE WHEN CHOOSING A COUNTERPARTY." Вестник Тверского государственного университета. Серия: Экономика и управление, no. 3(59) (September 30, 2022): 43–53. http://dx.doi.org/10.26456/2219-1453/2022.3.043-053.
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Статья посвящена исследованию критерия должной осмотрительности при выборе организацией нового контрагента. Авторы статьи анализируют современный опыт и дают рекомендации по организации и методическому сопровождению оценки рисков, возникающих в связи с возможным невыполнением обязательств по заключенным договорам. Целью статьи является рассмотрение действующей практики в рамках проявления должной осмотрительности в договорных отношениях с новым контрагентом, при котором налогоплательщик должен оценить риски, возникающие в связи с возможным невыполнением им взятых на себя партнерских обязательств. Основной задачей исследования является изучение возможных вариантов проверки для выявления неблагонадежных контрагентов, с использованием открытых данных государственных органов и негосударственных источников информации, подготовка рекомендаций по классификации сведений о них. Объектом рассмотрения является деятельность по проверке благонадежности нового контрагента в рамках разработки процедур их предварительного отбора на заключение договоров. Научная новизна статьи заключается в разработке предложений по анализу и принятию решения относительно заключения договора с новым контрагентом с использованием открытых данных государственных органов и негосударственных источников информации. The article is devoted to the study of the due diligence criterion when the organization chooses a new counterparty. The authors of the article analyze modern experience and give recommendations on the organization and methodological support of the assessment of risks arising from the possible failure to fulfill obligations under concluded contracts. The main purpose of the article is to study the current practice as part of the exercise of due diligence in contractual relations with a new counterparty, in which the taxpayer must assess the risks arising from the possible failure to fulfill its partnership obligations. The main objective of the study is to study possible options for checking and identifying unreliable counterparties, using open data from state bodies and non-state sources of information, preparing recommendations for classifying information about them. The object of consideration is the activity of checking the trustworthiness of the new counterparty as part of the development of procedures for their preliminary selection for the conclusion of contracts. In the process of research, scientific methods for solving the set tasks and achieving the set goal were applied: analysis, synthesis, abstraction, as well as techniques for systematizing theoretical and practical material. The scientific novelty of the article is to analyze and make a decision regarding the conclusion of a contract with a new counterparty using open data from state bodies and non-state sources of information.
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Wu, Liang, Xian-bin Mei, and Jian-guo Sun. "A New Default Probability Calculation Formula and Its Application under Uncertain Environments." Discrete Dynamics in Nature and Society 2018 (August 1, 2018): 1–9. http://dx.doi.org/10.1155/2018/3481863.
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In the real world, corporate defaults will be affected by both external market shocks and counterparty risks. With this in mind, we propose a new default intensity model with counterparty risks based on both external shocks and the internal contagion effect. The effects of the external shocks and internal contagion on a company cannot, however, be observed, as uncertainty in the real world contains both randomness and fuzziness. This prevents us from determining the size of the shocks accurately. In this study, fuzzy set theory is utilized to study a looping default credit default swap (CDS) pricing model under uncertain environments. Following this, we develop a new fuzzy form pricing formula for CDS, the simulation analysis of which shows that all kinds of fuzziness in the market have a significant impact on credit spreads, and that the credit spreads, relative to the degree of external shock fuzziness, are much more sensitive. Nevertheless, for a certain degree of fuzziness in the market, credit spreads, relative to changes in counterparty risk, are much more sensitive. Using random analysis and fuzzy numbers, one can think of even more uncertain sources at play than the processes of looping default and investor subjective judgment on the financial markets, and this broadens the scope of possible credit spreads. Compared to the existing related literature, our new fuzzy form CDS pricing model with counterparty risk can consider more factors that influence default and is closer to the reality of the complexity of the dynamics of default. It can also employ the membership function to describe the fuzzy phenomenon, enable the fuzzy phenomenon to be estimated in two kinds of state, and can simultaneously reflect both the fuzziness and randomness in financial markets.
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Li, Tianshu. "Fintech Application in Banking Operations - Application of Machine Learning in Mitigating Bank Derivatives Counterparty Risks." Asian Business Research 4, no. 3 (October 8, 2019): 1. http://dx.doi.org/10.20849/abr.v4i3.652.
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We all know that human has many psychological biases, including overconfidence, gender discrimination and so on. Although some genuine lenders may outperformance others, machine learnings have been utilized to solve this human psychological bias in many areas. By using machine learnings methods, people can make better financial decisions. This proposal tries to examine the effectiveness of several different machine learning models on predicting the ex-pose default risk, including BP neural network, decision tree, KNN, and random forest. I focus on loans on one electronic P2P lending platform, called “Paipaidai” in which lenders select and supply private loans to borrowers with different characteristics. I use machine learnings methods to predict the default risk and thus provides better ways for investors to select high-quality borrower. I will also further test how different machine learnings methods perform when there is soft information contained by using Prosper platform.
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DURAND, CYRIL, and MAREK RUTKOWSKI. "CVA UNDER ALTERNATIVE SETTLEMENT CONVENTIONS AND WITH SYSTEMIC RISK." International Journal of Theoretical and Applied Finance 16, no. 07 (November 2013): 1350039. http://dx.doi.org/10.1142/s0219024913500398.
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We propose a fairly general framework which allows one to perform Credit Value Adjustment (CVA) computations for a contract with bilateral counterparty risk in the presence of (a) systemic risk and (b) wrong-way or right-way risks. Our methodology focuses on the role of alternative settlement clauses, but it also aims to cover various features of margin agreements. We present a comparative analysis of numerical results that supports our initial conjecture that alternative specifications of settlement values have a nonnegligible impact on CVA computations for contracts with bilateral counterparty risk. Our conclusions emphasize the practical importance of more sophisticated models that are capable of fully reflecting the actual features of financial contracts, as well as the influence of the market environment.
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Agnese, Alessio, Pier Giuseppe Giribone, and Francesca Querci. "Current and prospective estimate of counterparty risk through dynamic neural networks." Risk Management Magazine 17, no. 2 (August 25, 2022): 42–61. http://dx.doi.org/10.47473/2020rmm0112.
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The estimate of the probability of default plays a central role for any financial entity that wants to have an overview of the risks of insolvency it may incur by having economic relations with counterparties. This study aims to analyze the calculation of such measure in the context of counterparty risk from a current and prospective standpoint, by using dynamic neural networks. The forecasting aspect in the calculation of such risk measure is becoming more and more important over time as current regulation is increasingly based on a "Through the Cycle" and not a "Point in Time" assessment, consequently giving fundamental importance to such estimate. To this end, three different models aimed at calculating the Probability of Default have been investigated: the CDS method, the Z-Spread method, and the KMV method (Kealhofer, Merton and Vasicek). First, the different techniques have been applied to one of the main suppliers of gas and energy in Italy as a reference company. Then, they have been applied to calculate the same risk measure on the 50 companies included in one of the most important European indices, the Euro Stoxx 50.
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Pfeiferová, Daniela, and Ivana Kuchařová. "Risks of collective investment undertakings in the context of global capital markets." SHS Web of Conferences 74 (2020): 01025. http://dx.doi.org/10.1051/shsconf/20207401025.
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In the context of globalization, international institutional investors have taken over a significant proportion of global investment assets. Among this group also belong to collective investment undertakings whose primary motive is regulated by collecting funds from indeterminate group of natural persons and legal persons for the purpose of doing business on a global scale. As part of their reporting obligations, these entities are required to report on the risks associated with the investment and how to eliminate them. Investment firms must use risk management methods that allow these risks to be identified at any time. The main risks associated with investments in collective investment funds include global financial risks: interest rate risk, currency risk, equity risk, credit risk, counterparty risk, liquidity risk, operational risk and political risk. This article deals with the definition of specific investment risks and the options for their elimination for collective investment entities. The main goal of the article is to recommend the elimination of these risks based on the identified risks associated with collective investment.
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Shrimali, Gireesh. "Financial Instruments to Address Renewable Energy Project Risks in India." Energies 14, no. 19 (October 7, 2021): 6405. http://dx.doi.org/10.3390/en14196405.
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This paper provides a summary of financial instruments to address two biggest risks to renewable projects in India. These risks include the following: first, off-taker (or counterparty) risk, which relates to payment delays by public-sector distribution companies to independent power producers, which then impact project level cash flows in the domestic currency; second, currency (or foreign exchange) risk related to currency fluctuations, which impact foreign investor level cash flows in foreign currencies. This paper then describes multiple solutions for each of these risks, using public funding mechanisms. For payment delays, the category of solutions is termed Payment Security Mechanisms; whereas, for currency fluctuations, the category of solutions is termed Foreign Exchange Hedging Facilities. The coverage in this paper shows the evolution of the solutions from theory to practice over time. These solutions are likely to be applicable to other developing countries.
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Bakulina, A. A., and V. I. Tikhon. "Due Diligence as the Tool for the Reliability of the Counterparty." Accounting. Analysis. Auditing 5, no. 4 (September 14, 2018): 78–93. http://dx.doi.org/10.26794/2408-9303-2018-5-4-78-93.
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Doing business involves entering into contractual relations not only with the clients, whose business reputation and financial capabilities have been tested for years, but also with the suppliers, vendors and lessors. Quite frequently there are lucrative offers from previously unknown companies, or sometimes there might be a need for transactions of purchase and sale of real estate, stocks or other assets on the open market, the suppliers and contractors often get changed. In order to form the most complete picture of partners and contractors from the point of view of the financial reliability aspect as well as the assessment of the prospects for further cooperation, the due diligence procedure is organized.The relevance of the researched theme will provide an opportunity to protect the organization from fraud on the part of the partners and contractors, which will contribute not only to the reduction of the financial risks of the company, but also to the increase in economic security of the organization as a whole.The authors have covered the acute aspects of the organizational process of due diligence in various economic entities. The methods of the research were as follows: the method of analogies, grouping method, analysis, synthesis, comparison, systematic and logical approaches. The sources of information were: the legal framework and the annual reports of the international companies.
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Jin, Yunguo, and Shouming Zhong. "New explicit closed form formulae for the prices of catastrophe options." International Journal of Financial Engineering 02, no. 02 (June 2015): 1550017. http://dx.doi.org/10.1142/s2424786315500176.
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The paper presents an approach of probability measure changes to the pricing of catastrophe options with counterparty risk and new catastrophe option pricing formulae. According to our knowledge, there still does not exist a literature to present the approach of probability measure changes to option pricing when underlying stock returns are discontinuous (in particular, catastrophe options). We shall see that sometimes it is convenient to change the risk-neutral measures. Furthermore, our models and results have potential improvements. Finally, we use Monte Carlo method to the analog calculation of the formulae, and demonstrate how financial risks and catastrophic risks affect the price of the catastrophe options.
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Förster, Daniel, and Martin Walther. "The Link Between Incomplete Information on the Interbank Network and Counterparty Risk." Credit and Capital Markets – Kredit und Kapital: Volume 52, Issue 2 52, no. 2 (April 1, 2019): 213–27. http://dx.doi.org/10.3790/ccm.52.2.213.
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Abstract This paper describes a model in which a network of interbank loans leads to a severe amplification of the previously unanticipated insolvency of one bank. Banks that cannot rule out an indirect hit react by selling assets and hoarding liquidity. While this potentially lowers illiquidity risks, it depresses market liquidity and prices. This leads to a negative externality by which sales to acquire liquidity simultaneously lead to lower global sale proceeds and thus to a greater number of insolvencies inducing deadweight losses. Thus, the distribution of information on the network has a direct impact on welfare by itself. Der Zusammenhang zwischen unvollständigen Informationen über das Banknetzwerk und Adressenausfallrisiken Zusammenfassung In dieser Arbeit wird ein Modell betrachtet, in dem das Netzwerk aus Interbankenkrediten die Folgen der unerwarteten Insolvenz einer einzelnen Bank drastisch verstärkt. Banken, die indirekte Verluste nicht ausschließen können, reagieren mit dem Verkauf von Vermögenswerten und dem Horten von Liquidität. Dies führt zwar potenziell zu einer Senkung der Illiquiditätsrisiken, drückt aber die Marktliquidität und Preise. Es kommt zu einem negativen externen Effekt, da die Verkäufe zur Liquiditätsbeschaffung gleichzeitig zu geringeren Verkaufserlösen und damit zu einer größeren Anzahl von Insolvenzen, die Wohlfahrtsverluste mit sich bringen, führen. Demnach hat die Informationsverteilung im Bankennetzwerk einen direkten Einfluss auf die Wohlfahrt. JEL Classification: G01, G11, G21, G33
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Aksoy, Tamer, and Yunus Emre Asan. "Assessing financial risk management in local governments." International Journal of Business Ecosystem & Strategy (2687-2293) 2, no. 4 (March 27, 2021): 10–23. http://dx.doi.org/10.36096/ijbes.v2i4.231.
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The purpose of this study is to examine the impact of the financial risks local governments are exposed to within the scope of financial risk management practices. ?stanbul Metropolitan Municipality (?MM) was selected for this study because it is the largest local government with the highest budget. ?n the study, the development of financial risk performance of ?MM between the years 2008-2018 was examined in the light of the risks ?MM is exposed to. The main results regarding the risks faced by ?MM during the period are as follows: Financial data obtained from the financial statements of ?MM were used to examine the performance of listed risks& effects they have on the budget of ?MM. The results indicate that (i) risk of Dependence on Shares from the central budget revenue; (ii) ?MM was directly dependent on the central budget in terms of revenues, so in this period, the risk of dependency was high in terms of counterparty risk.
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Akopova, Elena, and Oksana Voronkova. "Risks Related to Foreign Trade Activities and Their Mininmization When Entering into a Foreign Trade Contract." Bulletin of Baikal State University 29, no. 1 (April 4, 2019): 64–71. http://dx.doi.org/10.17150/2500-2759.2019.29(1).64-71.
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The access of Russian companies to foreign markets is associated with the introduction of a risk-based approach to foreign trade management. In this article, the authors aim to build an algorithm of the actions of companies to identify, evaluate and select methods of risk management in foreign trade transactions, to specify their scope and to justify practical solutions for their prevention and minimization under foreign trade contracts and contractual work. To solve this problem, the authors use theoretical and methodological advances in the theory of risks, contract theory, risk management standards, as well as the practice of export operations of Russian companies. The results of the study include specific proposals for managing risks arising on the part of a foreign counterparty, a home country and a country of expansion of Russian enterprises, as well as the risks encountered in the process of interaction with the bodies, regulating foreign trade transactions.
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Liu, Qian. "Calculation of Credit Valuation Adjustment Based on Least Square Monte Carlo Methods." Mathematical Problems in Engineering 2015 (2015): 1–6. http://dx.doi.org/10.1155/2015/959312.
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Counterparty credit risk has become one of the highest-profile risks facing participants in the financial markets. Despite this, relatively little is known about how counterparty credit risk is actually priced mathematically. We examine this issue using interest rate swaps. This largely traded financial product allows us to well identify the risk profiles of both institutions and their counterparties. Concretely, Hull-White model for rate and mean-reverting model for default intensity have proven to be in correspondence with the reality and to be well suited for financial institutions. Besides, we find that least square Monte Carlo method is quite efficient in the calculation of credit valuation adjustment (CVA, for short) as it avoids the redundant step to generate inner scenarios. As a result, it accelerates the convergence speed of the CVA estimators. In the second part, we propose a new method to calculate bilateral CVA to avoid double counting in the existing bibliographies, where several copula functions are adopted to describe the dependence of two first to default times.
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Chen, Tingqiang, Qinghao Yang, Yutong Wang, and Suyang Wang. "Double-Layer Network Model of Bank-Enterprise Counterparty Credit Risk Contagion." Complexity 2020 (October 30, 2020): 1–25. http://dx.doi.org/10.1155/2020/3690848.
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Banks and enterprises constitute a multilayered, multiattribute, multicriteria credit-related super network due to financial transaction behaviors, such as credit, wealth management, savings, and derivatives. Such a network has become an important channel for credit risk cross-contagion. This study constructs a two-layer network model of credit risk contagion between the bank and corporate counterparties from the perspective that banks do not withdraw loans from enterprises by considering the influence of corporate credit defaults on their counterparties under the credit linkage. This study analyzes the mechanism of influencing the evolution of bank-enterprise counterparty credit risk contagion in the two-tier network through theoretical analysis, including the following: the enterprises’ coping ability, risk preference, influence, level of interenterprise credit risk contagion and its network heterogeneity in the interenterprise credit association network, the risk prevention and control ability, business correlation degree, interbank credit risk contagion and its network heterogeneity in the interbank credit association network, the level of credit risk contagion between bank-enterprise counterparty credit association networks, and other factors in the case that banks do not withdraw loans from enterprises. In addition, this study performs a calculation experiment to analyze the characteristics of the evolution of counterparty credit risk contagion of bank and corporate counterparties under the double-layer network. The following four major conclusions can be drawn from the results. First, in the interenterprise credit-related network, the threshold of credit risk contagion rate is positively correlated with the marginal increase in risk perception and risk leveling ability of the enterprise. By contrast, such threshold is negatively correlated with the marginal decrease in the initial economic impact, leverage level, and influence of the enterprise. Moreover, the scale of corporate counterparty credit risk contagion is negatively correlated with the enterprise’s risk perception level and risk spillover ability but positively correlated with the enterprise’s initial economic shock level, the enterprise’s leverage level, and influence. Second, in the interbank credit association network, the threshold of the rate of credit risk contagion is negatively correlated with the marginal decrease in the degree of interbank business association but positively correlated with the marginal increase in the bank’s risk resistance ability and risk information processing ability. Furthermore, the scale of credit risk contagion of bank counterparties is positively correlated with the degree of interbank business association but negatively correlated with the bank’s ability to resist risks and process risk information. Third, if the heterogeneity of the credit-related network of bank-enterprise counterparties is high, then the rate threshold of credit risk contagion is high and the scale of credit risk diffusion is low. Moreover, the scale of credit risk contagion of bank counterparties is positively correlated with the marginal decrease in the degree of corporate and bank counterparties. Finally, the scale of bank counterparty credit risk contagion is a monotonically increasing convex function of the credit risk contagion rate in the enterprise credit association network and among the bank-enterprise networks.
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Zotikov, Nikolay Z. "TAX RISKS WHEN DOING BUSINESS IN RUSSIA." Oeconomia et Jus, no. 1 (March 26, 2021): 31–43. http://dx.doi.org/10.47026/2499-9636-2021-1-31-43.
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The tax legislation does not contain a clear definition of the term "tax risks". Setting up and expanding a private business is not an easy task. Apart from the idea and a great desire to do business, financial resources are necessary, the investment of which does not always bring benefits. Risks in doing business are on the watch for any entrepreneur, not only a beginner, but that who has been running his business for more than a year as well. When finances are invested in any business, the risk is always present. The causes for tax risks uprising may be: frequently changing tax legislation, in connection with which the business does not have time to master the changing rules of the game in time; failure (late) execution of fiscal liabilities in the manner and time limits provided for by the Tax Code of the Russian Federation; work with unscrupulous partners; transactions between related parties (violation of pricing rules for these transactions); minimizing taxes by applying optimization methods not provided for by the Tax Code of the Russian Federation. Tax risks exist not only for taxpayers, but for the state as well, which is associated with a possible decrease in tax revenues, which are the financial component of the budget. The article provides a classification of risks, factors that cause tax risks in an organization. The level of risk remains high when working with counterparties, and therefore, despite the adoption of Article 54.1 of the Tax Code of the Russian Federation, which replaced the concept of obtaining unjustified tax benefits, the importance of caution and prudence in choosing a counterparty does not become weaker. The author presents the key performance indicators of the control work carried out by the tax authorities for 2016–2019.
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SUNGATULLINA, Liliya B., and Il'mira R. BADGUTDINOVA. "A prospective analysis of the financial responsibility of debtors in the information environment." International Accounting 22, no. 1 (January 15, 2021): 72–93. http://dx.doi.org/10.24891/ia.24.1.72.
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Subject. This article deals with the issues of receivables management on the basis of a prospective assessment of the financial solvency of potential counterparties. Objectives. The article aims to develop methodological approaches to the management of receivables when checking the counterparty for reliability by identifying the existence of a statistically significant relationship between the quick liquidity ratio and impact factors. Methods. For the study, we used the methods of analysis and synthesis, generalization and comparison, logical and systemic reasoning, and stochastic analysis. Results. The article proposes a developed methodology of prospective assessment of the financial soundness of counterparties on the basis of special tools of the Gretl software. The methodology is a way to manage an organization's receivables by providing prospective and estimated information at the contract stage to minimize potential risks when executing agreements. Conclusions. The proposed algorithm of prospective assessment of the creditworthiness of counterparties will help reduce the risk of non-repayment of receivables and develop minimum requirements, which the counterparty must meet in order to obtain a loan. The results of the study can be applied in the organization's practical activities as part of the development of receivables management activities.
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Friesz, Melinda, and Kata Váradi. "How is it Done? : Comparison between the Margin Calculation Methodology of Central Counterparties and Clearinghouses." Pénzügyi Szemle = Public Finance Quarterly 66, no. 3 (2021): 397–412. http://dx.doi.org/10.35551/pfq_2021_3_5.
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Clearinghouses and central counterparties have become the backbone of financial markets by stepping between trades, facilitating securities trading, and derivative transactions on exchanges and overthe-counter markets. In the literature and in practice, too, the notion of clearinghouse and central counterparty are used as synonyms, but there is still a slight difference that highlights their distinction. This paper focuses on the margin calculation methodology of these institutions and emphasizes the contrast between the two. Results show that although capturing the same risks, clearinghouses’ margin requirement is better from a procyclicality and cash flow management point of view; however, central counterparties margining is more prudent based on our results.
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WU, LIXIN, and DAWEI ZHANG. "xVA: DEFINITION, EVALUATION AND RISK MANAGEMENT." International Journal of Theoretical and Applied Finance 23, no. 01 (February 2020): 2050006. http://dx.doi.org/10.1142/s0219024920500065.
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xVA is a collection of valuation adjustments made to the classical risk-neutral valuation of a derivative or derivatives portfolio for pricing or for accounting purposes, and it has been a matter of debate and controversy. This paper is intended to clarify the notion of xVA as well as the usage of the xVA items in pricing, accounting or risk management. Based on bilateral replication pricing using shares and credit default swaps, we attribute the P&L of a derivatives trade into the compensation for counterparty default risks and the costs of funding. The expected present values of the compensation and the funding costs under the risk-neutral measure are defined to be the bilateral CVA and FVA, respectively. The latter further breaks down into FCA, MVA, ColVA and KVA. We show that the market funding liquidity risk, but not any idiosyncratic funding risks, can be bilaterally priced into a derivative trade, without causing price asymmetry between the counterparties. We call for the adoption of VaR or CVaR methodologies for managing funding risks. The pricing of xVA of an interest-rate swap is presented.
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Szczepański, Marek. "Modern Methods and Instruments for Managing Longevity Risk in Pension Plans." Olsztyn Economic Journal 8, no. 4 (December 31, 2013): 331–45. http://dx.doi.org/10.31648/oej.3243.
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Extending the average life span in every next generation is a positive phenomenon - the result of the progress of civilization in the area of working conditions, the level of medical care, etc. However, this process also entails certain risks. Such a threat which can be accurately predicted and calculated and thus also recognized in terms of risk (which can be managed by people) is the longevity risk, or in other words the risk of a longer than expected life expectancy. It applies both to individuals as well as whole generations (demographic cohorts). The longevity risk threatens public pension systems as well as complementary and supplementary systems (individual and company run) as long as they guarantee payment of benefits for life. The cognitive aim of this article is to present the theoretical and practical case studies of selected methods and longevity risk management instruments as well as an attempt to evaluate their effectiveness. The author attempts to address a question whether the use of certain instruments to manage longevity risk would not trigger yet another type of risk - the so-called counterparty risk. It poses threat to each party of a contract that the counterparty will not live up to its contractual obligations.
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Сладкова, Алена Александровна. "OPPORTUNITIES AND RISKS IN THE IMPLEMENTATION OF FOREIGN TRADE ACTIVITIES AT THE PRESENT STAGE." Вестник Тверского государственного университета. Серия: Экономика и управление, no. 1(57) (April 6, 2022): 65–75. http://dx.doi.org/10.26456/2219-1453/2022.1.065-075.
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Предпринимательская деятельность всегда являлась рискованным видом деятельности, а внешнеторговые операции подвергнуты еще большему риску, так как компании выходят за пределы своего государства и сталкиваются с определенными запретами и ограничениями. Кроме трудоемкого процесса по поиску контрагента и исполнению внешнеторгового контракта значительные трудности могут возникнуть при перемещении товарной партии через таможенную границу, поэтому важно оценить риски и предусмотреть их решение заблаговременно. Целью научного исследования является рассмотрение некоторых рисков, возникающих при осуществлении внешнеторговой сделки. По результатам анализа судебной практики был определен перечень документов и сведений, которые запрашивают таможенные органы в целях контроля классификационного кода товара и таможенной стоимости. Научная новизна полученных результатов заключается в подготовке краткого алгоритма действий по подготовке необходимой документации, которую следует сформировать в ходе реализации внешнеторговой сделки в целях исключения или минимизации рисков. Entrepreneurial activity has always been a risky activity, and foreign trade operations are even more at risk, as companies go outside their state and face certain prohibitions and restrictions. In addition to the labor-intensive process of finding counterparty and executing a foreign trade contract, significant difficulties may arise when moving a consignment across the customs border, so it is important to assess the risks and provide for their solution in advance. The purpose of the scientific study is to consider some risks arising from the implementation of a foreign trade transaction. Based on the results of the analysis of judicial practice, a list of documents and information requested by the customs authorities in order to control the classification code of the goods and the customs value was determined. The scientific novelty of the results obtained consists in the preparation of a short algorithm of actions to prepare the necessary documentation, which should be formed during the implementation of the foreign trade transaction in order to eliminate or minimize risks
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Wawrosz, P. "Productive of the Service Sector: Theory and Practice of Corruption Declining." Marketing and Management of Innovations, no. 4 (2019): 269–79. http://dx.doi.org/10.21272/mmi.2019.4-21.
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Corruption contracts are, throughout the democratic world, illegal and considered immoral. Their participants thus cannot use standard procedures to find a second party, to negotiate the content of the contract, to check if it performs what was promised, and to enforce the promises. This increases the risks associated with the contract. Illegality or immorality of the contract makes both parties more vulnerable – each party can threaten to reveal the contract and denounce the second party. Connecting a corruption contract with a previously established legal contract is usually seen as the best way to reduce risks and to reinforce the corruption contract. Owing to legal contacts and contracts, potential parties interested in corruption know where they should seek a counterparty and what to offer. At the same time, the corruption contract is tied to legal contracts, and failure to fulfil conditions of the corruption contract may put such legal contract at risk, therefore there is a higher probability that both parties to the corruption contract would fulfil what was promised and that there will be no extortion by any of the parties to demand additional fulfilment after the end of the corruption contract or that the corruption contract will not be disclosed. This paper presents the opposite approach in which a corruption contract is established as the first and it creates the base for further often legal but immoral contracts. All contracts lead to the mutually advantageous affinity of all its participants who often become members of corruption networks. The article presents the model when a blackmailed or dependent person must participate in corruption contracts, otherwise, it faces serious problems. But sooner or later, participation will begin to bring him benefits, so he becomes dependent on the network, although initially, he had moral inhibitions to participate in its activities. The subjects looking a counterparty of the corruption contract thus often create the environment of dependency and blackmailing and when people that are obliged to corruption lose their scruples and they see corruption as the common behaviour. Our model comes from real corruption networks in the Czech Republic. Some of them are briefly analysed. Theory of corruption must pay higher attention to all factors contributing to the spread of corruption behaviour, including mutual dependence and extortion Keywords: blackmailing, corruption, corruption networks, corruption risks, mutual dependency
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YI, CHUANG. "DANGEROUS KNOWLEDGE: CREDIT VALUE ADJUSTMENT WITH CREDIT TRIGGERS." International Journal of Theoretical and Applied Finance 14, no. 06 (September 2011): 839–65. http://dx.doi.org/10.1142/s0219024911006395.
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We generalize the arbitrage-free valuation framework for counterparty credit risk (CCR) adjustments when credit triggers are allowed in the contract. The settlement of the deal for the investor could be either obliged or optional to execute when the counterparty hits the credit trigger before any default events from the two parties. General formulas for credit value adjustment (CVA) are given for all four cases: obliged unilateral, obliged bilateral, optional unilateral and optional bilateral. The unilateral CVA with an optional credit trigger is found to be the same as the unilateral CVA with an analogous obliged credit trigger. We show that adding credit triggers will decrease the unilateral CVA for both obliged and optional cases, which are in line with the motivation of investors to reduce CCR. However, adding credit triggers may not necessarily reduce bilateral CVA. Counter-intuitively, we show that the bilateral CVA may actually increase by adding credit triggers. Moreover, the increased amount of bilateral CVA due to credit triggers for one party is exactly the same amount of bilateral CVA reduced for the other party. The CVA calculation is subjected to large uncertainty of model risks, mostly due to the lack of data for calibrating jump-to-default probabilities. Some explicit models for obliged unilateral CVA are discussed with special caveats on the model assumptions. Numerical examples are also given to illustrate the model risk of CVA calculation due to the uncertainty of jump sizes, even though pure jump models are assumed.
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Novak, Oksana, Oleksandr Melnychenko, and Oksana Oliinyk. "Improving the regulation of the derivatives market as an objective prerequisite for sustainable development of the global financial system." E3S Web of Conferences 307 (2021): 02002. http://dx.doi.org/10.1051/e3sconf/202130702002.
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The development of financial markets is characterized by the emergence of new financial instruments, in particular derivatives, the risk level analysis of which is complicated. Counterparties are not always fully aware of and do not adequately assess the potential risks of derivatives, which may lead to large financial losses and sometimes bankruptcies. The purpose of the study is to generalize approaches to regulating derivative markets and analyse the adequacy of regulatory influence to ensure sustainable development of the global financial system. The article analyses the approaches of scientists and regulators of the USA and the EU to the regulation of the derivatives market before and after the financial crisis of 2007-2008. Prior to the crisis, most scholars took a liberal approach to derivatives market regulation and recommended monitoring new instruments and not restricting their circulation in any way, emphasizing that effective counterparty risk management and their propensity for self-preservation can prevent excessive risk-taking. The authors analyse the potential risks of derivatives and conclude that exchange-traded derivatives can cause similar processes of liquidity crisis, and, therefore, need additional regulatory tools to ensure the stability of the financial system
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Shaker, I. E. "The Role of the Standardized Approach to Measuring the Counterparty Credit Risk Exposures (Basel III) in Order to Create Conditions for Russia’s Economic Growth." Economics, taxes & law 12, no. 3 (July 7, 2019): 144–53. http://dx.doi.org/10.26794/1999-849x-2019-12-3-144-153.
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The subject of the researchis the Standardized Approach to measuring the Counterparty Credit Risk (SA-CCR) exposures according to the reform of the international standards of macroprudential regulation to ensure a breakthrough in the scientific, technological and socio-economic development of Russia. The purposeof the research was to assess the introduction and use of the post-crisis Basel III standard until 2021 to create financially sound credit and banking institutions as the main triggers of the system risk in order to maintain public confidence in the financial system and ensure sustainable economic growth. The paper examines the prospects for the implementation of the Basel III standard, taking into account the standardized approach to measuring the counterparty credit risk to meet the challenges of Russia’s entry into the top five world economies.Given the global financial market conditions, the economic growth is ensured by the economies of scale as well as by harmonization of structural macroprudential rules in different countries, which requires an international standardized approach to system risk management when macro-prudential policies are aimed at alleviating credit risks thereby having a positive impact on the economic growth.The effectiveness of the macro-prudential policy for banks is reduced when less regulated financial intermediaries increase the market share and openness allowing organizations and households to receive money from foreign financial sources.The paper concludesthat in shaping the country’s macro-prudential policies, it is necessary to assess the relative importance of each channel of manifestation and transformation of the system risk and its impact on the economic growth in the national economy.
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Smith, Sean Stein, and John “Jack” Castonguay. "Blockchain and Accounting Governance: Emerging Issues and Considerations for Accounting and Assurance Professionals." Journal of Emerging Technologies in Accounting 17, no. 1 (November 1, 2019): 119–31. http://dx.doi.org/10.2308/jeta-52686.
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ABSTRACT Blockchain technology has been a disruptive force in currency, supply chain, and information sharing practices across a variety of industries. Its usage has only recently expanded into assurance and financial reporting. This paper explores blockchain's impact in these areas and provides guidance for organizations and auditors utilizing blockchain by addressing financial data integrity issues, financial reporting risks, and implications for external auditors and firms' corporate governance practices. Organizations utilizing blockchain must adapt their policies and procedures over internal controls and counterparty risk assessment to address increasing regulation over the distribution of financial data, while their audit committees must be prepared to address these challenges leading up to financial statement preparation. External auditors need to assess blockchain implementation as a financial reporting risk and balance the potentially more reliable and timelier audit evidence obtained from blockchain-based reporting systems against the related increase in internal control testing.
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Oldani, Chiara. "Global financial regulatory reforms and sovereign’s exemption." Journal of Financial Regulation and Compliance 26, no. 2 (May 14, 2018): 190–202. http://dx.doi.org/10.1108/jfrc-11-2016-0105.
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Purpose The purpose of this paper is to underline the (hidden) risks posed after the crisis by the exemption of non-financial operators, especially sovereigns, from the regulatory reforms of over the counter (OTC) derivatives undertaken by G20 countries in the absence of accounting data on trading. Design/methodology/approach Recent financial regulatory improvements are reported to underline that the trading of OTC derivatives by sovereigns and local administrations does not take place under the new regulatory umbrella, because of the relative size of the institution, the lack of incentives to adhere to Centralized Counterparty Systems (CCPs) and most of all, the absence of proper accounting rules. Sovereigns and local administrations have the potential to undermine global financial stability. Findings The limited availability of accounting data on derivatives’ use by public administrations constitutes a barrier towards a full comprehension of risks involved. Sovereigns should be compelled to adhere to the CCPs and the collateralized system of trading; the short-term costs of adhering to CCPs are worth $20bn. Research limitations/implications The new regulatory system failed to explicitly consider the trading of sovereigns and this can reduce the effectiveness of regulation itself and can have negative impact on financial stability; in fact, omitting sovereigns from these regulations represent a significant risk oversight because they are systemically important players, although with a special political power. Originality/value Despite progress made in improving the transparency and resilience of OTC derivative markets after the subprime crisis, sovereigns and public administrations are exempted from the new regulation, posing severe risks to financial stability.
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Atkinson, Paul, and Adrian Blundell-Wignall. "What Problem Is Post-Crisis QE Trying to Solve?" Journal of Risk and Financial Management 15, no. 2 (January 18, 2022): 40. http://dx.doi.org/10.3390/jrfm15020040.
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What problem the Fed and other central banks are solving by printing money and letting interest rates fall to zero is the focus of this paper. This activity does not appear to affect nominal GDP or inflation prior to COVID, and yet central bank liabilities have continued to rise. This suggests the presence of rising cash demand that has prevented excess cash and inflation pressures from emerging. While there was some hope that quantitative easing would be a new instrument in addition to interest rates as far as monetary policy goals were concerned, this has not proved to be the case. Instead, banking system demand for central bank liabilities keeps rising as an endogenous response to the changed business models of banks forced on them by post-crisis re-regulation and extremely low interest rates. These ideas were tested with cointegration and error correction econometric techniques. Examples of the growing risk of leverage and counterparty risks in this disequilibrium process are provided.
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Petersen, M. A., J. Mukuddem-Petersen, B. De Waal, M. C. Senosi, and S. Thomas. "Profit and Risk under Subprime Mortgage Securitization." Discrete Dynamics in Nature and Society 2011 (2011): 1–64. http://dx.doi.org/10.1155/2011/849342.
Full textAbstract:
We investigate the securitization of subprime residential mortgage loans into structured products such as subprime residential mortgage-backed securities (RMBSs) and collateralized debt obligations (CDOs). Our deliberations focus on profit and risk in a discrete-time framework as they are related to RMBSs and RMBS CDOs. In this regard, profit is known to be an important indicator of financial health. With regard to risk, we discuss credit (including counterparty and default), market (including interest rate, price, and liquidity), operational (including house appraisal, valuation, and compensation), tranching (including maturity mismatch and synthetic) and systemic (including maturity transformation) risks. Also, we consider certain aspects of Basel regulation when securitization is taken into account. The main hypothesis of this paper is that the SMC was mainly caused by the intricacy and design of subprime mortgage securitization that led to information (asymmetry, contagion, inefficiency, and loss) problems, valuation opaqueness and ineffective risk mitigation. The aforementioned hypothesis is verified in a theoretical- and numerical-quantitative context and is illustrated via several examples.
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Geranio, Manuela. "Fintech in the Exchange Industry: Potential for Disruption?" Masaryk University Journal of Law and Technology 11, no. 2 (September 30, 2017): 245–66. http://dx.doi.org/10.5817/mujlt2017-2-3.
Full textAbstract:
The recent growth of financial technology ventures involves several types of financial players, including stock exchanges. Many of them are exploring blockchain applications to their multiple business lines, focusing in particular on post trading activities. Potential benefits include the reduction in counterparty risk and post trading costs as well as the increase of liquidity and transparency. At current stage exchanges are mainly exploring the technology looking for proofs of concept, with the exception of some more advanced projects like at Nasdaq and ASX. The mass adoption will require longer efforts and is expected to come in a decade, at least. Fintech developments are receiving strong attention also by regulators and international organizations, given the potential of distributed ledger technology for both competition enhancement and cyber risk reduction. A coordination between market players and regulators is essential to guarantee the effective implementation of new technologies, as their benefits can be delivered only in presence of a common framework and a proper management of risks.
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Orlando, Giuseppe, and Roberta Pelosi. "Non-Performing Loans for Italian Companies: When Time Matters. An Empirical Research on Estimating Probability to Default and Loss Given Default." International Journal of Financial Studies 8, no. 4 (November 9, 2020): 68. http://dx.doi.org/10.3390/ijfs8040068.
Full textAbstract:
Within bank activities, which is normally defined as the joint exercise of savings collection and credit supply, risk-taking is natural, as in many human activities. Among risks related to credit intermediation, credit risk assumes particular importance. It is most simply defined as the potential that a bank borrower or counterparty fails to fulfil correctly at maturity the pecuniary obligations assumed as principal and interest. Whenever this happens, a loan is non-performing. Among the main risk components, the Probability of Default (PD) and the Loss Given Default (LGD) have been the subject of greater interest for research. In this paper, logit model is used to predict both components. Financial ratios are used to estimate the PD. Time of recovery and presence of collateral are used as covariates of the LGD. Here, we confirm that the main driver of economic losses is the bureaucratically encumbered recovery system and the related legal environment. The long time required by Italian bureaucratic procedures, simply put, seems to lower dramatically the chance of recovery from defaulting counterparties.