RISK MANAGEMENT OF FINANCIAL DERIVATIVES

2004 ◽  
Vol 10 (3-4) ◽  
pp. 107-126
Author(s):  
Elvis Mujacevic ◽  
Vanja Ivanovic
Keyword(s):  
Risk Management ◽  
Financial Markets ◽  
Balance Sheet ◽  
Cash Flows ◽  
Financial Derivatives ◽  
Management Systems ◽  
Financial Instruments ◽  
Factors Associated ◽  
For Profit ◽  
And Control

Financial derivatives come in many shapes and forms, including futures, forwards, swaps, options, structured debt obligations and deposits, and various combinations thereof. Some are traded on organized exchanges, whereas others are privately negotiated transactions. Derivatives have become an integral part of the financial markets because they can serve several economic functions. Derivatives can be used to reduce business risks, expand product offerings to customers, trade for profit, manage capital and funding costs, and alter the risk-reward profile of a particular item or an entire balance sheet. Although derivatives are legitimate and valuable tools for banks and corporations, like all financial instruments they contain risks that must be managed. Managing these risks should not be considered unique or singular. Risks associated with derivatives are not new or exotic. They are basically the same as those faced in traditional activities (e.g., price, interest rate, liquidity, credit risk). Fundamentally, the risk of derivatives (as of all financial instruments) is a function of the timing and variability of cash flows. It is very important to understand the various risk factors associated with business activities and to establish appropriate risk management systems to identify, measure, monitor, and control exposure and risk associated with derivatives.

MENGELOLA RESIKO DENGAN PRODUK DERIVATIF

2008 ◽  
Author(s):  
Dandes Rifa
Keyword(s):  
Risk Management ◽  
Value At Risk ◽  
Foreign Currency ◽  
Balance Sheet ◽  
Cash Flows ◽  
Market Risks ◽  
Hedging Strategies ◽  
Operational Hedging ◽  
Potential Risks ◽  
Derivative Products

The main objective of risk management is to minimize the potential for losses (risk) arising from unexpected changes in currency rates, credit, commodities and equities. One of the risks faced by companies is market risk (value at risk). This article aims to explain that risk management can be one of them by using derivative products. Derivative transactions is very useful for business people who want to hedge (hedging) against a commodity, which always experience price changes from time to time. There are three strategies that can be used to hedge the balance sheet hedging strategy, operational hedging strategies and contractual hedging strategies. Staregi contractual hedging is a form of protection that is done by forming a contractual hedging instruments in order to provide greater flexibility to managers in managing the potential risks faced by foreign currency. Most of these contractual hedging instrument in the form of derivative products. The management can enhance shareholder value by controlling risk. -Party investors and other interested parties hope that the financial manager is able to identify and manage market risks to be faced. If the value of the firm equals the present value of future cash flows, then risk management can be justified. 

scholarly journals Risk management of derivative financial instruments

2021 ◽  
pp. 89-98
Author(s):  
Oksana Kirillova ◽  
Ellina Emelyanova
Keyword(s):  
Risk Management ◽  
Financial Derivatives ◽  
Financial Instruments ◽  
Financial Instrument ◽  
Russian Market ◽  
Advantages And Disadvantages ◽  
The Subject ◽  
Faster Development

The subject of the study is derivative financial instruments. At the beginning of the article, the concept of a derivative financial instrument (PFI) is considered, their advantages and disadvantages are given, after which the risks of operations carried out with PFI are formulated. Further, the article discusses the main problems inherent in the PFI market and suggests a number of measures to solve these problems. In conclusion, recommendations are made that will allow for faster development of the Russian market of financial derivatives.

scholarly journals Creating Value Through Enterprise Risk Management

2011 ◽  
Vol 25 (3) ◽  
Author(s):  
Frantz Maurer
Keyword(s):  
Risk Management ◽  
Financial Markets ◽  
Enterprise Risk Management ◽  
Strategic Decision ◽  
Management Systems ◽  
Management Approach ◽  
Financial Risks ◽  
Fully Integrated ◽  
Enterprise Risk ◽  
Integrated Risk

The traditional risk management approach has been characterized as a highly disaggregated method of managing financial risks. Recently, risk management has evolved from a narrow, insurance based view to a holistic; all risk encompassing view, commonly termed Enterprise Risk Management (ERM). Financial risks are inherent in financial markets and their management represents one of the main tasks in the business of financial institutions. Enterprise Risk Management enables management to effectively deal with uncertainty and associated risk and opportunity, enhancing the capacity to build value. In contrast to the existing finance literature, this paper emphasizes the practical issues related to the adoption of an ERM framework for strategic decision-making in banks. The aim is to provide an extensive guide to the implementation issues faced by banks that are in the process of implementing fully integrated risk management systems and capabilities.

scholarly journals CREDIT DERIVATIVES IN BANKING: BENEFITS AND THREATS

2020 ◽  
Vol 3 (47) ◽  
pp. 7-16
Author(s):  
Anastasiia Petruk ◽  
Roman Stadniichuk
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Commercial Banks ◽  
Global Financial Crisis ◽  
Balance Sheet ◽  
Credit Derivatives ◽  
Third Party ◽  
Financial Instruments ◽  
Negative Consequences ◽  
Advantages And Disadvantages

Financial institutions have faced a variety of threats, the main reasons for which are weak lending standards, ineffective risk evaluation of the loan portfolio, lack of attention to economic and other factors that can affect the creditworthiness of bank counterparties. Thus, among various threats, credit risk, caused by lending, remains the main source of problems for commercial banks. However, globalization and liberalization of the global financial system has led to the appearance of other sources, including trade and investment transactions, which are reflected both on the balance sheet and off-balance sheet. Banks are increasingly faced with credit risk in other financial operations – for example, with derivative financial instruments. Effective credit risk management is a critically important component of the comprehensive approach to risk management and the long-term success of a banking organization. The use of financial instruments that allows commercial banks to transfer credit risk to a third party for a fee and, thus, avoid the additional costs for forming reserves, has become one of the ways to prevent negative consequences. However, despite the many advantages associated with the risk hedging, credit derivatives, like other financial innovations, pose additional risks directly related to the application of these instruments. For example, these risks have manifested themselves in the global financial crisis of 2008-2009 and minimized the positive effect of the credit derivatives. This article discusses the advantages and disadvantages of using credit derivatives by commercial banks, shows the need for timely identification of probable risks and the development of effective methods for managing them by both the risk management of the bank and regulators.

scholarly journals Editorial note

2018 ◽  
Vol 8 (2) ◽  
pp. 4-5
Author(s):  
Elizaveta Kravchenko
Keyword(s):  
Risk Management ◽  
Financial Markets ◽  
Low Income ◽  
Management Practices ◽  
Audit Fees ◽  
Risk Measurement ◽  
Editorial Note ◽  
Risk Governance ◽  
Recent Issue ◽  
And Control

The recent issue of the journal Risk Governance and Control: Financial Markets & Institutions is devoted to the issues of risk measurement, microinsurance, low-income markets, risk management practices, audit fees, etc.

scholarly journals Alleviating Coordination Problems and Regulatory Constraints Through Financial Risk Management

2013 ◽  
Vol 03 (02) ◽  
pp. 1350009 ◽  
Author(s):  
Marcel Boyer ◽  
M. Martin Boyer ◽  
René Garcia
Keyword(s):  
Risk Management ◽  
Financial Risk ◽  
Market Price ◽  
Empirical Support ◽  
Cash Flows ◽  
Financial Derivatives ◽  
Financial Risk Management ◽  
Regulatory Constraints ◽  
Coordination Costs ◽  
Price Of Risk

Seeing the firm as a nexus of activities and projects, we propose a characterization of the firm where variations in the market price of risk should induce adjustments in the firm's portfolio of projects. In a setting where managers disagree with respect to what investment maximizes value, changing the portfolio of projects generates coordination costs. We then propose a new role for financial risk management based on the idea that the use of financial derivatives reduces coordination costs by moving the organization's expected cash flows and risks toward a point where coordination in favor of real changes is easier to achieve. We find empirical support for this new rationale for the use of financial derivatives, after controlling for the traditional variables explaining the need for financial risk management.

Risk management systems for prevention and control of contaminants in animal feed

2021 ◽  
pp. 187-212
Author(s):  
Regiane R. Santos ◽  
Keyword(s):  
Risk Management ◽  
Prevention And Control ◽  
Animal Feed ◽  
Technical Information ◽  
Management Systems ◽  
The Public ◽  
Feed Production ◽  
Feed Safety ◽  
Food Safety Risk ◽  
And Control

Feed safety remains an issue for both the health of livestock and as a prerequisite for food safety. Risk assessment plays a role in identifying and determining potential risks of contaminants. When contaminants limits are defined, risk management systems can be designed for prevention and control. Finally, risk communication covers the technical information shared between governments, academia, the different players involved in feed production, and the public. This chapter focuses on management systems used to prevent and control contaminants in animal feed. A brief introduction to feed contaminants and new feed ingredients is given, followed by a description of the main risk management systems applied in Europe and the US.

scholarly journals EXOTIC OPTIONS: A CHOOSER OPTION AND ITS PRICING

2012 ◽  
Vol 10 (2) ◽  
pp. 289-301 ◽  
Author(s):  
Raimonda Martinkutė-Kaulienė
Keyword(s):  
Risk Management ◽  
Financial Markets ◽  
Management Process ◽  
Exotic Options ◽  
Financial Instruments ◽  
Strike Price ◽  
Risk Management Process ◽  
Basic Characteristics ◽  
Complex Derivative ◽  
Made In

Financial instruments traded in the markets and investors’ situation in such markets are getting more and more complex. This leads to more complex derivative structures used for hedging that are harder to analyze and which risk is harder managed. Because of the complexity of these instruments, the basic characteristics of many exotic options may sometimes be not clearly understood. Most scientific studies have been focused on developing models for pricing various types of exotic options, but it is important to study their unique characteristics and to understand them correctly in order to use them in proper market situations. The paper examines main aspects of options, emphasizing the variety of exotic options and their place in financial markets and risk management process. As the exact valuation of exotic options is quite difficult, the article deals with the theoretical and practical aspects of pricing of chooser options that suggest a broad range of usage and application in different market conditions. The calculations made in the article showed that the price of the chooser is closely correlated with the choice time and low correlated with its strike price. So the first mentioned factor should be taken into consideration when making appropriate hedging and investing decisions.

scholarly journals Global Derivatives Market

SEEU Review ◽  
2017 ◽  
Vol 12 (1) ◽  
pp. 81-93
Author(s):  
Aleksandra Stankovska
Keyword(s):  
Risk Management ◽  
Financial Markets ◽  
Price Discovery ◽  
Financial Derivatives ◽  
Underlying Asset ◽  
Economic Role ◽  
Derivative Instruments ◽  
The Stability ◽  
Financial Transactions

Abstract Globalization of financial markets led to the enormous growth of volume and diversification of financial transactions. Financial derivatives were the basic elements of this growth. Derivatives play a useful and important role in hedging and risk management, but they also pose several dangers to the stability of financial markets and thereby the overall economy. Derivatives are used to hedge and speculate the risk associated with commerce and finance. When used to hedge risks, derivative instruments transfer the risks from the hedgers, who are unwilling to bear the risks, to parties better able or more willing to bear them. In this regard, derivatives help allocate risks efficiently between different individuals and groups in the economy. Investors can also use derivatives to speculate and to engage in arbitrage activity. Speculators are traders who want to take a position in the market; they are betting that the price of the underlying asset or commodity will move in a particular direction over the life of the contract. In addition to risk management, derivatives play a very useful economic role in price discovery and arbitrage. Financial derivatives trading are based on leverage techniques, earning enormous profits with small amount of money.

scholarly journals ANALYSIS OF RISK AND POTENTIALITIES IN SYSTEM OF ORGANIZATION QUALITY MANAGEMENT

2016 ◽  
Vol 2016 (1) ◽  
pp. 159-163
Author(s):  
Николай Борбаць ◽  
Nikolay Borbats ◽  
Олег Горленко ◽  
Oleg Gorlenko ◽  
Татьяна Можаева ◽  
...  
Keyword(s):  
Risk Management ◽  
Quality Management ◽  
Basic Concept ◽  
Process Approach ◽  
Management Systems ◽  
Technological Systems ◽  
Quality Management Systems ◽  
Organization Quality ◽  
Methodological Approaches ◽  
And Control

According to standards of ISO set 9000 version 2015 as before a process approach remains a basic concept in the formation of quality management systems (QMS) of an organization, but its matter changes considerably. Thereupon an organization must ensure not only a systematic definition and control of processes and a system, in particular, with a general orientation to the thought based of the assessment of risks and potentialities with the purpose of the prevention of undesirable result obtaining. Organization colleagues should be taught to the methods to solve problems, searches and possibility realizations to update processes. At the same time it is worth changing the attitude toward arising problems and consider their detection as an occurrence of new possibilities to increase effectiveness in organization activities. The methodological approaches to the consideration of risks and potentialities in the QMS and its processes are developed not enough. Therefore the approaches to the consideration of risks ion technological systems could be applied quite reasonably. The paper reports a thorough consideration of stages in the process of a risk management and stages in the cycle of the potentialities use the application of which, no doubt, will promote the effectiveness in-crease in organization activities including educational ones.

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