68 research outputs found
Applying stress-testing on value at risk (VaR) methodologies
In recent years, Value at Risk (VaR) methodologies, i. e., Parametric VaR, Historical
Simulation and the Monte Carlo Simulation have experienced spectacular growth within the new
regulatory framework which is Basle II. Moreover, complementary analyses such a Stress-testing
and Back-testing have also demonstrated their usefulness for financial risk managers.
In this paper, we develop an empirical Stress-Testing exercise by using two historical scenarios
of crisis. In particular, we analyze the impact of the 11-S attacks (2001) and the Latin
America crisis (2002) on the level of risk, previously calculated by different statistical methods.
Consequently, we have selected a Spanish stock portfolio in order to focus on market risk
Models of public-private partnerships in megaprojects: the Spanish case
This article provides a
literature review of PPP Models, where the clarification of this current
confusion and ambiguity constitute the fundamental issue addressed
by our research. The systematization of the PPP models is performed by
applying six classification criteria based on organizational and financial
aspects and focused on the Spanish experience. Additionally, a comparative
study of the various schemes applied in European countries is
carried out, whereby the concession model implemented successfully
in Spain is studied in greater detail. To this end, a megaproject, the first
metro line of Seville (Spain) forms the basis of a case-study. When the
megaproject is viable through user fees, the public sector can use PPPs
to defer payments and as a way to control their deficits and debt without
cutting investments in infrastructures and public services. Nevertheless,
certain drawbacks should be borne in mind, such as the expenditure
commitments of future budgets, the higher cost of private funding, and
the necessity for transparency and accountability of PPP contractual
arrangements to be improved. Therefore, the aim of this article is to
analyze the various forms of PPPs in megaprojects in order to determine
the potential efficiency gains that can be achieved in the implementation
of these models
Internal models (IRB) in Basel II: an approach to determining the probability of default
The New Accord of Basel, known as Basel II, opens the way for and encourages the implementation of credit entities'
own models for measuring their financial risks. In this paper, we focus on the internal models for the assessment of
credit risk (IRB), and specifically on the approach to one of their components: the probability of default (PD).
Our paper is structured in three sections. In the first section, we present the most significant aspects of the credit risk
treatment in Basel II. In the second part, the available financial literature is reviewed. And finally, we undertake an
empirical application with the object of determining what is or are the variables that are able to explain why a company
defaults. Furthermore, this would serve as a preventive "warning system" for financial entities
Bail-In: a sustainable mechanism for rescuing banks
Until the Great Recession, rescuing banks with taxpayers’ money had been the preferred way to deal with banking crises. The dramatic effects of these practices on the real economy highlighted that bailouts are not a sustainable method to resolve troubled banks going forward. As a result, a new regulatory framework has been proposed, forcing the financial industry to move from “bailout” to “bail-in.” Understanding the implications of such a change is key to ensuring the success of these new banking rules. This article aims to build up a comprehensive and unbiased set of research articles in order to draw conclusions about the current status of the academic literature in the field of capital and loss absorption requirements. A research agenda on the topic is also proposed. The methodological approach undertaken is based on ProKnow-C (Knowledge Development Process-Constructivist). We also contribute to the development of Proknow-C methodology by adding a cross-reference extension to the original framework. The results of our analysis point out that further research has to be undertaken on the subject of loss absorption requirements
Fuzzy Logic and Its Uses in Finance: A Systematic Review Exploring Its Potential to Deal with Banking Crises
The major success of fuzzy logic in the field of remote control opened the door to its application in many other fields, including finance. However, there has not been an updated and comprehensive literature review on the uses of fuzzy logic in the financial field. For that reason, this study attempts to critically examine fuzzy logic as an effective, useful method to be applied to financial research and, particularly, to the management of banking crises. The data sources were Web of Science and Scopus, followed by an assessment of the records according to pre-established criteria and an arrangement of the information in two main axes: financial markets and corporate finance. A major finding of this analysis is that fuzzy logic has not yet been used to address banking crises or as an alternative to ensure the resolvability of banks while minimizing the impact on the real economy. Therefore, we consider this article relevant for supervisory and regulatory bodies, as well as for banks and academic researchers, since it opens the door to several new research axes on banking crisis analyses using artificial intelligence techniques
Hybrid model using logit and nonparametric methods for predicting micro-entity failure
Following the calls from literature on bankruptcy, a parsimonious hybrid bankruptcy model is developed in this paper
by combining parametric and non-parametric approaches.To this end, the variables with the highest predictive power to
detect bankruptcy are selected using logistic regression (LR). Subsequently, alternative non-parametric methods
(Multilayer Perceptron, Rough Set, and Classification-Regression Trees) are applied, in turn, to firms classified as
either “bankrupt” or “not bankrupt”. Our findings show that hybrid models, particularly those combining LR and
Multilayer Perceptron, offer better accuracy performance and interpretability and converge faster than each method
implemented in isolation. Moreover, the authors demonstrate that the introduction of non-financial and macroeconomic
variables complement financial ratios for bankruptcy prediction
Risk management according to Basel II: analysis of Spanish financial entities annual reports
El nuevo Acuerdo de Capital, Basilea II marca un punto de partida tanto
en la gestión de los riesgos como en las relaciones que habrán de mantener
entidades financieras y supervisores. El Acuerdo se configura a través
de tres pilares: pilar I, requerimientos mínimos de capital, pilar II, revisión
supervisora y pilar III, disciplina de mercado.
Nuestro trabajo tiene un doble objetivo. En primer lugar profundizar en el análisis
teórico del contenido del tercer pilar, incidiendo especialmente en el tratamiento
del riesgo de crédito. Para ello se ha realizado un estudio analítico sobre los
contenidos de este pilar en el nuevo acuerdo. Como conclusión se puede extraer
que el Acuerdo ha dejado gran parte de los contenidos de este pilar en manos de
las propias entidades financieras y en última instancia el control a los reguladores
de cada país. En segundo lugar hemos querido conocer el grado de preparación
de las entidades de crédito frente al reto que, en materia de riesgo de crédito, les
impone el Acuerdo en general y el tercer pilar en particular. Para ello hemos utilizado
una muestra de entidades financieras españolas y hemos procedido a estudiar
la información contenida en sus memorias anuales en el período 2000 – 2003.
Como conclusión de este estudio se puede ver una evolución exponencial
con respecto a la información publicada por las entidades, no habiendo
prácticamente ninguna información referente a Basilea en el año 2000 y produciéndose
un salto, tanto cualitativo como cuantitativo, en el 2001. En el
último año del estudio, 2003, prácticamente todas las entidades analizadas
aportan datos de los requeridos por Basilea.Basel II, the new Capital Accord, is a landmark regarding both risk management
and the relations to be established amongst financial institutions
and regulators. It displays a three-pillar structure: Pillar I, minimum capital
requirements, Pillar II, supervising review, and Pillar III, market regulation.
This study has a twofold purpose. Firstly, focusing upon credit risk, we have
realised an analytical study of the Third Pillar as tailored within the new accord.
We may conclude this Accord has left most of this pillar content under
the responsibility of financial entities and, it ultimately holds each country’s
national regulators responsible for controlling the sector. Secondly, we envisage
appraising the credit organisms’ level of preparation to respond to the
credit risks challenges as posed by the Accord in general, and the Third Pillar
in particular. We have thus utilised a sample composed by Spanish financial
entities and studied the information disclosed in their annual reports for the
time period of 2000 – 2003.
The study concludes that the amount of information disclosed by the entities
has increased exponentially. It is interesting to highlight there is no
information in line with the Basel parameters for the year of 2000. Yet, we
are glad to report a qualitative and quantitative leap forward for the year of
2001. Almost all the institutions studied comprise data complying with the
Basel requirements for the year 2003
Kernel alternatives to aproximate operational severity distribution: an empirical application
The estimation of severity loss distribution is one the main topic in operational
risk estimation. Numerous parametric estimations have been suggested
although very few work for both high frequency small losses and low frequency
big losses. In this paper several estimation are explored. The good performance
of the double transformation kernel estimation in the context of operational risk
severity is worthy of a special mention. This method is based on the work of
Bolancé and Guillén (2009), it was initially proposed in the context of the cost of
claims insurance, and it means an advance in operational risk research
Improving bankruptcy prediction in micro-entities by using nonlinear effects and non-financial variables
The use of non-parametric methodologies, the introduction of non-financial variables,
and the development of models geared towards the homogeneous characteristics of
corporate sub-populations have recently experienced a surge of interest in the bankruptcy
literature. However, no research on default prediction has yet focused on micro-entities
(MEs), despite such firms’ importance in the global economy. This paper builds the first
bankruptcy model especially designed for MEs by using a wide set of accounts from 1999
to 2008 and applying artificial neural networks (ANNs). Our findings show that ANNs
outperform the traditional logistic regression (LR) models. In addition, we also report
that, thanks to the introduction of non-financial predictors related to age, the delay
in filing accounts, legal action by creditors to recover unpaid debts, and the ownership
features of the company, the improvement with respect to the use of solely financial
information is 3.6%, which is even higher than the improvement that involves the use
of the best ANN (2.6%)
The financial performance of an innovative megaproject
The financial structure of megaprojects, known in the literature as project finance, is characterized by the creation of a legally
independent project company financed with a concentrated equity ownership and a high level of non-recourse debt. Research in
this field may yield new ideas and theories about the existing theoretical framework on capital structure, stakeholder
management and risk management. A case-study is analyzed in this paper: the financial performance of the first metro line in
Seville (Spain). In spite of previous cost overruns in the construction stage, the present operation stage is considered successful
from the point of view of social and financial profitability, whereby the risks have been theoretically transferred to stakeholders,
as defined by Value for Money considerations.
The objective of this study involves: first to determine whether this megaproject meets the expectations for which it was created
in terms of hope of return of the shareholders, and the expectations of the economic and financial feasibility under a change of
subsidy policies; and secondly to determine whether the conditions remain for not including the investment as public debt. This
issue is crucial in a budgetary constraint context for the planning of future metro lines. By taking this first experience into
account, this article also provides information for potential participants in the projects of the new metro lines, which are
currently in the planning stage
- …