scholarly journals Comparative analysis between global sukuk and bond indices: value-at-risk approach

2020 ◽  
Vol 11 (6) ◽  
pp. 1245-1256
Author(s):  
Rubaiyat Ahsan Bhuiyan ◽  
Maya Puspa ◽  
Buerhan Saiti ◽  
Gairuzazmi Mat Ghani
Keyword(s):  
At Risk ◽  
Value At Risk ◽  
Emerging Market ◽  
Management Tool ◽  
Bond Markets ◽  
Investment Portfolio ◽  
Financial Contracts ◽  
Content Type ◽  
Risk Approach ◽  
Bond Indices

Purpose Sukuk is an innovative financial instrument with a flexible structure based on Islamic financial contracts, unlike a bond which is based on the structure of a loan imposed with interest. With the notion that sukuk differs considerably from the conventional bonds in terms of risks related to investment, this study aims to examine whether the sukuk market is different from conventional bond markets based on the value-at-risk (VaR) approach. Design/methodology/approach The VaR of a portfolio consists of sukuk and bond indices and is undertaken to determine whether there is any reduction in the VaR amount through the inclusion of the sukuk index in the portfolio. The analysis is undertaken based on the developed and emerging market bond and sukuk indices from January 2010 to December 2015. Findings This paper examines whether the VaR of sukuk market differs from conventional bond markets by using fundamental techniques. It was observed that the VaR amount of sukuk indices is comparatively much lower than the VaR of bond indices in all the cases. Including the sukuk index with each bond index can reduce the VaR of the portfolio by around 30 to 50 per cent for all the developed and emerging market bond indices. Research limitations/implications This research is limited to covering six years of data. Nonetheless, it is able to provide findings which are believed to be useful for the market players. Practical implications This study unveils attractive opportunities in terms of diversification benefits of sukuk indices for international fixed-income portfolios. Originality/value The VaR method is a useful risk management tool. This study uses this method to emphasise the significant reduction of risks and diversification benefits that sukuk investment could offer by including it in the investment portfolio.

Volatility Forecast by Volatility Index and Its Use as a Risk Management Tool Under a Value-at-Risk Approach

2018 ◽  
Vol 21 (02) ◽  
pp. 1850010 ◽  
Author(s):  
Yam Wing Siu
Keyword(s):  
At Risk ◽  
Risk Management ◽  
Risk Premium ◽  
Value At Risk ◽  
Realized Volatility ◽  
Management Tool ◽  
Spot Price ◽  
Pricing Options ◽  
Significance Levels ◽  
Risk Approach

This paper examines the predicting power of the volatility indexes of VIX and VHSI on the future volatilities (or called realized volatility, [Formula: see text] of their respective underlying indexes of S&P500 Index, SPX and Hang Seng Index, HSI. It is found that volatilities indexes of VIX and VHSI, on average, are numerically greater than the realized volatilities of SPX and HSI, respectively. Further analysis indicates that realized volatility, if used for pricing options, would, on some occasions, result in greatest losses of 2.21% and 1.91% of the spot price of SPX and HSI, respectively while the greatest profits are 2.56% and 2.93% of the spot price of SPX and HSI, respectively, making it not an ideal benchmark for validating volatility forecasting techniques in relation to option pricing. Hence, a new benchmark (fair volatility, [Formula: see text] that considers the premium of option and the cost of dynamic hedging the position is proposed accordingly. It reveals that, on average, options priced by volatility indexes contain a risk premium demanded by the option sellers. However, the options could, on some occasions, result in greatest losses of 4.85% and 3.60% of the spot price of SPX and HSI, respectively while the greatest profits are 4.60% and 5.49% of the spot price of SPX and HSI, respectively. Nevertheless, it can still be a valuable tool for risk management. [Formula: see text]-values of various significance levels for value-at-risk and conditional value-at-value have been statistically determined for US, Hong Kong, Australia, India, Japan and Korea markets.

The risk analysis of Bitcoin and major currencies: value at risk approach

2019 ◽  
Vol 22 (1) ◽  
pp. 38-52 ◽  
Author(s):  
Umut Uyar ◽  
Ibrahim Korkmaz Kahraman
Keyword(s):  
At Risk ◽  
Risk Analysis ◽  
Value At Risk ◽  
Risk Measure ◽  
Risk Level ◽  
Portfolio Risk ◽  
Content Type ◽  
Historical Simulation ◽  
Digital Currency ◽  
Risk Approach

Purpose This study aims to compare investors of major conventional currencies and Bitcoin (BTC) investors by using the value at risk (VaR) method common risk measure. Design/methodology/approach The paper used a risk analysis named as VaR. The analysis has various computations that Historical Simulation and Monte Carlo Simulation methods were used for this paper. Findings Findings of the analysis are assessed in two different aspects of singular currency risk and portfolios built. First, BTC is found to be significantly risky with respect to the major currencies; and it is six times riskier than the singular most risky currency. Second, in terms of inclusion of BTC into a portfolio, which equally weights all currencies, it elevates overall portfolio risk by 98 per cent. Practical implications In spite of the remarkable risk level, it could be considered that investors are desirous of making an investment on BTC could mitigate their overall exposed risk relatively by building a portfolio. Originality/value The paper questions the risk level of Bitcoin, which is a digital currency. BTC, a matter of debate in the contemporary period, is seen as a digital currency free from control or supervision of a regulatory board. With the comparison of major currencies and BTC shows that how could be risky of a financial instrument without regulations. However, there is some advice for investors who would like to invest digital currencies despite the risk level in this study.

Cryptocurrencies and portfolio diversification in an emerging market

2022 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Lehlohonolo Letho ◽  
Grieve Chelwa ◽  
Abdul Latif Alhassan
Keyword(s):  
Market Economy ◽  
Value At Risk ◽  
Emerging Market ◽  
Efficient Frontier ◽  
Conditional Value At Risk ◽  
Portfolio Risk ◽  
Investment Portfolio ◽  
Content Type ◽  
The Mean ◽  
Mean Variance

PurposeThis paper examines the effect of cryptocurrencies on the portfolio risk-adjusted returns of traditional and alternative investments within an emerging market economy.Design/methodology/approachThe paper employs daily arithmetic returns from August 2015 to October 2018 of traditional assets (stocks, bonds, currencies), alternative assets (commodities, real estate) and cryptocurrencies. Using the mean-variance analysis, the Sharpe ratio, the conditional value-at-risk and the mean-variance spanning tests.FindingsThe paper documents evidence to support the diversification benefits of cryptocurrencies by utilising the mean-variance tests, improving the efficient frontier and the risk-adjusted returns of the emerging market economy portfolio of investments.Practical implicationsThis paper firmly broadens the Modern Portfolio Theory by authenticating cryptocurrencies as assets with diversification benefits in an emerging market economy investment portfolio.Originality/valueAs far as the authors are concerned, this paper presents the first evidence of the effect of diversification benefits of cryptocurrencies on emerging market asset portfolios constructed using traditional and alternative assets.

Value-at-risk performance in emerging and developed countries

2018 ◽  
Vol 14 (5) ◽  
pp. 591-612
Author(s):  
Luiz Eduardo Gaio ◽  
Tabajara Pimenta Júnior ◽  
Fabiano Guasti Lima ◽  
Ivan Carlin Passos ◽  
Nelson Oliveira Stefanelli
Keyword(s):  
At Risk ◽  
Financial Crises ◽  
Value At Risk ◽  
Risk Estimation ◽  
Developed Countries ◽  
Emerging Countries ◽  
Copula Functions ◽  
Predictive Capacity ◽  
Arch Models ◽  
Content Type

Purpose The purpose of this paper is to evaluate the predictive capacity of market risk estimation models in times of financial crises. Design/methodology/approach For this, value-at-risk (VaR) valuation models applied to the daily returns of portfolios composed of stock indexes of developed and emerging countries were tested. The Historical Simulation VaR model, multivariate ARCH models (BEKK, VECH and constant conditional correlation), artificial neural networks and copula functions were tested. The data sample refers to the periods of two international financial crises, the Asian Crisis of 1997, and the US Sub Prime Crisis of 2008. Findings The results pointed out that the multivariate ARCH models (VECH and BEKK) and Copula-Clayton had similar performance, with good adjustments in 100 percent of the tests. It was not possible to perceive significant differences between the adjustments for developed and emerging countries and of the crisis and normal periods, which was different to what was expected. Originality/value Previous studies focus on the estimation of VaR by a group of models. One of the contributions of this paper is to use several forms of estimation.

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