EIB Financial Report 2019

In 2019, the Bank’s lending signatures amounted to EUR 63.3 billion. This report includes the 2019 financial statements and audit report both for the EIB and the EIB Group

Macroeconomic Volatility and Sovereign Asset-Liability Management

For most developing countries, the predominant source of sovereign wealth is commodity related export income. However, over-reliance on commodity related income exposes countries to significant terms of trade shocks due to excessive price volatility. The spillovers are pro-cyclical fiscal policies and macroeconomic volatility problems that if not adequately managed, could have catastrophic economic consequences including sovereign bankruptcy. The aim of this study is to explore new ways of solving the problem in an asset-liability management framework for an exporting country like Ghana. Firstly, I develop an unconditional commodity investment strategy in the tactical mean-variance setting for deterministic returns. Secondly, in continuous time, shocks to return moments induce additional hedging demands warranting an extension of the analysis to a dynamic stochastic setting whereby, the optimal commodity investment and fiscal consumption policies are conditioned on the stochastic realisations of commodity prices. Thirdly, I incorporate jumps and stochastic volatility in an incomplete market extension of the conditional model. Finally, I account for partial autocorrelation, significant heteroskedastic disturbances, cointegration and non-linear dependence in the sample data by adopting GARCH-Error Correction and dynamic Copula-GARCH models to enhance the forecasting accuracy of the optimal hedge ratios used for the state-contingent dynamic overlay hedging strategies that guarantee Pareto efficient allocation. The unconditional model increases the Sharpe ratio by a significant margin and noticeably improves the portfolio value-at-risk and maximum drawdown. Meanwhile, the optimal commodities investment decisions are superior in in-sample performance and robust to extreme interest rate changes by up to 10 times the current rate. In the dynamic setting, I show that momentum strategies are outperformed by contrarian policies, fiscal consumption must account for less than 40% of sovereign wealth, while risky investments must not exceed 50% of the residual wealth. Moreover, hedging costs are reduced by as much as 55% while numerically generating state-dependent dynamic futures hedging policies that reveal a predominant portfolio strategy analogous to the unconditional model. The results suggest buying commodity futures contracts when the country’s current exposure in a particular asset is less than the model implied optimal quantity and selling futures contracts when the actual quantity exported exceeds the benchmark.Open Acces

Mapping the Risks and Risk Management Practices in Islamic Banking

Although risk management in Islamic banking is one of the major as well as controversial issues of the sector, it is still an under-researched area of study. A lot of uncertainties still exist in risk management in Islamic banking, for which the answers are not yet necessarily clear, but which will play a part in shaping the industry’s future. Effective risk management in Islamic banking, thus, deserves priority attention: unless the industry develops its own genuine risk management architecture, it cannot achieve the dynamism that provides the viability needed for a more resilient financial system than the failing Wall Street model. Therefore, the study of risk management issues of the Islamic banking industry is an important but complex area. This study, hence, explores and analyses risk management practices in the Islamic banking industry through the perceptions of participants who were drawn from the banking and finance industry. The research maps out the opinions and attitudes towards risk and locates the practices of the industry related to risk management. This study provides an up-to-date overview of current market practices, issues, and trends in risk management for Islamic banks. It focuses on practical applications and discusses a wide range of unique risks facing Islamic banks from the perspective of different range of practitioners. To fulfil the aims of the research study, first, the present thesis analyses a number of issues concerning the subject using secondary data. Second, the unique risks facing Islamic banks and the perceptions of banking professionals regarding these risks are surveyed through a questionnaire. The final survey sample comprised 72 surveys from 18 countries. The data were analysed using various statistical analysis techniques ranging from simple frequency distribution analysis to the more advanced analyses such as non-parametric statistical analysis, factor analysis, and MANOVA multivariate analysis of variance. Third, semi-structured interviews were subsequently conducted with 33 leading Islamic banking professionals from 9 countries in order to develop an in-depth understanding of the underlying issues. Focused coding technique is used to analyse and sort the findings. In general, the findings from this study identified weaknesses and vulnerabilities among Islamic banks in the area of risk management and governance. Risk management, monitoring, reporting, and mitigation need to be enhanced across the entire industry. The study has also shown that the majority of respondents consider liquidity, asset-liability management, and concentration risks as the top risks facing Islamic banks. In addition, regional risk perceptions were crystallized by conducting inferential statistical analysis. The findings also show that, although Islamic banks have shown resilience, they are not immune to financial shocks. The study asserts that the root drivers of the prevailing financial system have to be challenged and replaced by a more transparent and ethical alternative, for which Islamic finance is a serious yet underdeveloped option. The real issue in Islamic banking is the excessive reliance on form at the expense of substance. It should also be noted that the findings of the study have policy-making implications which could benefit regulators, policy makers, Shari’ah scholars, practitioners, academia, and institutional stakeholders. Furthermore, this study has filled a gap in the literature by empirically exploring risk management issues from an Islamic banking perspective

The Mathematics and Statistics of Quantitative Risk Management

It was the aim of this workshop to gather a multidisclipinary and international group of scientists at the forefront of research in econometrics, financial time series analysis, extreme value theory, financial mathematics, insurance mathematics and quantitative risk management. The heterogeneous composition of this group of researchers allowed one to discuss different facets of the mathematics and statistics of quantitative risk management, to communicate the state-of-the-art in the different areas, and to point towards new directions of research

G-CSC Report 2010

The present report gives a short summary of the research of the Goethe Center for Scientific Computing (G-CSC) of the Goethe University Frankfurt. G-CSC aims at developing and applying methods and tools for modelling and numerical simulation of problems from empirical science and technology. In particular, fast solvers for partial differential equations (i.e. pde) such as robust, parallel, and adaptive multigrid methods and numerical methods for stochastic differential equations are developed. These methods are highly adanvced and allow to solve complex problems.. The G-CSC is organised in departments and interdisciplinary research groups. Departments are localised directly at the G-CSC, while the task of interdisciplinary research groups is to bridge disciplines and to bring scientists form different departments together. Currently, G-CSC consists of the department Simulation and Modelling and the interdisciplinary research group Computational Finance