Stochastic Processes for the Risk Management

2018 ◽  
pp. 174-189
Author(s):  
Gamze Özel
Keyword(s):  
Risk Management ◽  
Brownian Motion ◽  
Financial Markets ◽  
Interest Rates ◽  
Stochastic Processes ◽  
Stochastic Models ◽  
Stock Prices ◽  
Financial Risk ◽  
Future Events ◽  
Software Codes

The financial markets use stochastic models to represent the seemingly random behavior of assets such as stocks, commodities, relative currency prices such as the price of one currency compared to that of another, such as the price of US Dollar compared to that of the Euro, and interest rates. These models are then used by quantitative analysts to value options on stock prices, bond prices, and on interest rates. This chapter gives an overview of the stochastic models and methods used in financial risk management. Given the random nature of future events on financial markets, the field of stochastic processes obviously plays an important role in quantitative risk management. Random walk, Brownian motion and geometric Brownian motion processes in risk management are explained. Simulations of these processes are provided with some software codes.

Stochastic Processes for the Risk Management

2015 ◽  
pp. 188-200
Author(s):  
Gamze Özel
Keyword(s):  
Risk Management ◽  
Brownian Motion ◽  
Financial Markets ◽  
Interest Rates ◽  
Stochastic Processes ◽  
Stochastic Models ◽  
Stock Prices ◽  
Financial Risk ◽  
Future Events ◽  
Software Codes

The financial markets use stochastic models to represent the seemingly random behavior of assets such as stocks, commodities, relative currency prices such as the price of one currency compared to that of another, such as the price of US Dollar compared to that of the Euro, and interest rates. These models are then used by quantitative analysts to value options on stock prices, bond prices, and on interest rates. This chapter gives an overview of the stochastic models and methods used in financial risk management. Given the random nature of future events on financial markets, the field of stochastic processes obviously plays an important role in quantitative risk management. Random walk, Brownian motion and geometric Brownian motion processes in risk management are explained. Simulations of these processes are provided with some software codes.

Stochastic Processes for the Risk Management

2018 ◽  
pp. 473-488
Author(s):  
Gamze Özel
Keyword(s):  
Risk Management ◽  
Brownian Motion ◽  
Financial Markets ◽  
Interest Rates ◽  
Stochastic Processes ◽  
Stochastic Models ◽  
Stock Prices ◽  
Financial Risk ◽  
Future Events ◽  
Software Codes

The financial markets use stochastic models to represent the seemingly random behavior of assets such as stocks, commodities, relative currency prices such as the price of one currency compared to that of another, such as the price of US Dollar compared to that of the Euro, and interest rates. These models are then used by quantitative analysts to value options on stock prices, bond prices, and on interest rates. This chapter gives an overview of the stochastic models and methods used in financial risk management. Given the random nature of future events on financial markets, the field of stochastic processes obviously plays an important role in quantitative risk management. Random walk, Brownian motion and geometric Brownian motion processes in risk management are explained. Simulations of these processes are provided with some software codes.

scholarly journals Regulacija financijskog tržišta prije i nakon svjetske krize

2017 ◽  
Vol 5 (1) ◽  
Author(s):  
Anita Radman Peša ◽  
Vanja Zubak ◽  
Duje Mitrović
Keyword(s):  
Risk Management ◽  
Financial Markets ◽  
Interest Rates ◽  
Financial Market ◽  
Financial Risk ◽  
Banking Sector ◽  
Financial Regulation ◽  
Banking System ◽  
Financial Risk Management ◽  
Macroeconomic Stability

The banking sector in the global economic system is an area of great impact on the preservation of macroeconomic stability. As it turned out, and during the recent economic crisis, whose consequences are still felt in many countries, the collapse of the financial markets has farreaching effects on all of the national financial markets. The aim of this paper is to analyze the existing regulation of the financial markets and its (lack of) performance in the current financial risk management in order to preserve macroeconomic stability, and provide a secure and stable banking system. The purpose of the study was to present financial regulation before the crisis of 2008 / 2009, and to compare it with the regulations issued after the global crisis of 2008 / 2009 in order to conclusion whether it is cosmetic or real changes of regulating the financial system, and whether existing regulation in the future successfully prevent minor and major disruptions of the financial markets. Croatian financial market is especially analysed in the case of manipulation using the benchmark interest rates.

A Study on Risk Management in Financial Market

2019 ◽  
pp. 182-197
Author(s):  
Smruti Rekha Das ◽  
Kuhoo ◽  
Debahuti Mishra ◽  
Pradeep Kumar Mallick
Keyword(s):  
Risk Management ◽  
Financial Markets ◽  
Interest Rates ◽  
Financial Market ◽  
Stock Prices ◽  
Historical Data ◽  
Market Price ◽  
Business Goals ◽  
Current Price ◽  
Management Of Risk

The basic aim of risk management is to recognize, assess, and prioritize risk in order to assure that the uncertainty should not deviate from the intended purpose of the business goals. Risk can take place from various sources, which includes uncertainty in financial markets, recessions, inflation, interest rates, currency fluctuations, etc. Various methods used for this management of risk are faced with various decisions such as the market price, historical data, statistical methodologies, etc. For stock prices, the information derives from the historical data where the next price depends only upon the current price and some of the outside factors. Financial market is very risky to invest money, but the proper prediction with handling the risk will benefit a lot. Various types of risk in the financial market and the appropriate solutions to overcome the risk are analyzed in this study.

scholarly journals Present Scenario Of Derivative Market In India : An Analysis (2010-2018)

2018 ◽  
Vol 8 (02) ◽  
Author(s):  
Meenakshi Bindal
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Stock Prices ◽  
Financial Risk ◽  
Financial Risks ◽  
Macroeconomic Factors ◽  
Business World ◽  
Time Period ◽  
Financial Derivative ◽  
Derivative Market

Derivative market has an important role to play in economic development of a country. Change in exchange rates, interest rates and stock prices of different financial markets have increased the financial risk to the corporate world. Adverse changes in the macroeconomic factors have even threatened the very survival of business world. It is therefore necessary to develop a set of new financial instruments known as derivatives in the Indian financial markets, to manage such risk. The objectives of these instruments is to provide commitments to prices for future dates for giving protection against adverse movements in future prices, in order to reduce the extent of financial risks. This paper traces the growth and current position of India derivative market. The present study is an effort to analyze derivative trading in india. It is an effort to demonstrate the growth and expansion of financial derivative of NSE in India the time period i,e 2010-2011 to 2017-18.The market turnover has grown from Rs.17663664.57 Cr. in 2009-2010 to 1163539816.124 Cr. in 2017-18.

scholarly journals Futures and forward contract as a route of hedging the risk

2015 ◽  
Vol 5 (4) ◽  
pp. 68-78 ◽  
Author(s):  
Misbahul Islam ◽  
Jayanta Chakraborti
Keyword(s):  
Risk Management ◽  
Financial Markets ◽  
Exchange Rates ◽  
Interest Rates ◽  
Financial Risk ◽  
Fold Increase ◽  
Forward Contracts ◽  
Advantages And Disadvantages ◽  
Corporate World ◽  
Forward Contract

In the present highly uncertain business scenario, the importance of risk management is much greater than ever before. Variations in the prices of agricultural and non-agricultural commodities are induced, over time, by demand-supply dynamics. The last two decades have witnessed many-fold increase in the volume of international trade and business due to the wave of globalization and liberalization sweeping across the world. This has led to rapid and unpredictable variations in financial assets prices, interest rates and exchange rates, and subsequently, to exposing the corporate world to an unwieldy financial risk. As a result, financial markets have experienced rapid variations in interest and exchange rates, stock market prices thus exposing the corporate world to a state of growing financial risk. The emergence of derivatives market is an ingenious feat of financial engineering that provides an effective and less costly solution to the problem of risk that is embedded in the price unpredictability of the underlying asset. Derivatives provide an effective solution to the problem of risk caused by uncertainty and volatility in underlying assets. These are the financial instruments that are linked to a specific financial instrument or indicator or commodity and through which specific risks can be traded in financial markets in their own right. In actual practice there are various different types of derivatives but this paper emphasizes on the two most important types of derivatives i.e. futures and forward contracts. These two are the most commonly used types of derivatives in financial markets. We can hedge the risk of price variations in stocks, bonds, commodities, currencies, interest rates, market indices etc. This study is about the futures and forward contracts. This paper presents various types of futures and forward contract and what advantages and disadvantages these two important types of derivatives have? It also includes that how futures and forward contacts can be used as hedging tools of risk management.

scholarly journals The Effect of FOMC Votes on Financial Markets

2019 ◽  
Vol 101 (5) ◽  
pp. 921-932
Author(s):  
Carlos Madeira ◽  
João Madeira
Keyword(s):  
Monetary Policy ◽  
Financial Crisis ◽  
Financial Markets ◽  
Interest Rates ◽  
Stock Prices ◽  
Open Market ◽  
Federal Open Market Committee ◽  
2008 Financial Crisis ◽  
Treasury Securities ◽  
Stock Market Reaction

This paper shows that since votes of members of the Federal Open Market Committee have been included in press statements, stock prices increase after the announcement when votes are unanimous but fall when dissent (which typically is due to preference for higher interest rates) occurs. This pattern started prior to the 2007–2008 financial crisis. The differences in stock market reaction between unanimity and dissent remain, even controlling for the stance of monetary policy and consecutive dissent. Statement semantics also do not seem to explain the documented effect. We find no differences between unanimity and dissent with respect to impact on market risk and Treasury securities.

scholarly journals Spillovers of US Conventional and Unconventional Monetary Policies to Russian Financial Markets

2018 ◽  
Vol 10 (2) ◽  
pp. 14 ◽  
Author(s):  
Shigeki Ono
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Stock Prices ◽  
Monetary Policy Shocks ◽  
Federal Funds Rate ◽  
Monetary Policies ◽  
Endogenous Variables ◽  
Policy Shocks ◽  
Monetary Policy Shock

This paper investigates the spillovers of US conventional and unconventional monetary policies to Russian financial markets using VAR-X models. Impulse responses to an exogenous Federal Funds rate shock are assessed for all the endogenous variables. The empirical results show that both conventional and unconventional tightening monetary policy shocks decrease stock prices whereas an easing monetary policy shock does not increase stock prices. Moreover, the results suggest that an unconventional tightening monetary policy shock increases Russian interest rates and decreases oil prices, implying reduced liquidity in international financial markets.

Derivati ed economie regionali

2012 ◽  
pp. 421-435
Author(s):  
Loris Nadotti
Keyword(s):  
Risk Management ◽  
Local Government ◽  
Interest Rates ◽  
Financial Risk ◽  
Financial Risk Management ◽  
Interest Costs

Negli ultimi anni č cresciuta la sensibilitŕ dei gestori della finanza degli enti pubblici locali italiani per il rischio causato dalle variazioni dei tassi di interessi e per gli effetti che queste producono sui costi per interessi. Si č passati progressivamente da una gestione passiva degli strumenti di debito al cosiddetto financial risk management, inteso come metodo per il controllo dei rischi finanziari. Scopo dell'articolo č dimostrare come l'uso dei derivati finanziari, in queste circostanze e compatibilmente con il quadro normativo in vigore puň costituire una opportunitŕ ma, se non correttamente amministrato, anche una fonte aggiuntiva di rischi. Nell'articolo si delinea il quadro normativo e quantitativo riferito alla situazione italiana nell'ultimo decennio e si formulano alcune proposte per la gestione delle operazioni in derivati da parte degli enti della pubblica amministrazione locale italiana. In recent years, the sensitivity of the managers of the finance of Italian local government for the risk caused by changes in interest rates and the effects they produce on interest costs rose.

Financial Risk Management

2016 ◽  
pp. 301-311
Author(s):  
Mirela-Madalina Stoian ◽  
Rares-Gabriel Stoian
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Financial Markets ◽  
Financial Risk ◽  
Liquidity Risk ◽  
Financial Risks ◽  
Basic Principles ◽  
Financial Risk Management ◽  
Management Framework ◽  
Risk Management Framework

The present paper intends to serve as an introduction into the financial risk management universe. It starts with the basic assumption that performance of an organization is inseparable from the risks it is facing. Any organization should have in place the necessary tools to identify, assess and constantly measure the risks it is exposed to. The paper focuses in defining the basic principles in creating a viable risk management framework that keeps track of three major categories of identified financial risks: market risk, credit risk and liquidity risk. Emphasis is put on the models to measure these types of risks but also on the tools an organization can use in order to reduce them. The second part of the paper is dedicated to recent events that shaped and shocked financial markets and illustrate the consequences faced by organizations when risks are not properly assessed and the risk management models in place are based on dangerously unrealistic notions.

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