scholarly journals Using Genetic Algorithms to Develop a Dynamic Guaranteed Option Hedge System

2019 ◽  
Vol 11 (15) ◽  
pp. 4100 ◽  
Author(s):  
Hyounggun Song ◽  
Sung Kwon Han ◽  
Seung Hwan Jeong ◽  
Hee Soo Lee ◽  
Kyong Joo Oh
Keyword(s):  
Genetic Algorithm ◽  
Financial Markets ◽  
Capital Market ◽  
Linear Problem ◽  
Economic Benefits ◽  
Insurance Companies ◽  
Investment Efficiency ◽  
Investment Strategies ◽  
Market Risks ◽  
Total Profit

In this research, we develop a guaranteed option hedge system to protect against capital market risks using a genetic algorithm (GA). We test the hedge effectiveness of our guaranteed option hedge strategy by comparing the performance of our system with those of other strategies. A genetic algorithm heuristic trading method for the optimization of a non-linear problem is applied to each system to improve the hedge effectiveness. The GA dynamic hedge system developed in this research is found to improve hedge effectiveness by reducing the option value volatility and increasing the total profit. Insurance companies are able to make more efficient investment strategies by using our guaranteed option hedge system. It contributes to the investment efficiency of the insurance companies and helps to achieve efficiency for financial markets. In addition, it helps to achieve sustained economic benefits to policyholders. In this sense, the system developed in this paper plays a role in sustaining economic growth.

scholarly journals Legal features of market risks management in investment companies

2021 ◽  
pp. 267-279
Author(s):  
Ranko Sovilj ◽  
Sanja Stojković-Zlatanović
Keyword(s):  
Financial Markets ◽  
Capital Market ◽  
Early Recognition ◽  
Comparative Method ◽  
Legal Protection ◽  
Qualitative And Quantitative ◽  
European Legislation ◽  
Market Risks ◽  
Investment Companies ◽  
The Capital Market

The issue of market risks management in investment companies is being updated and gaining importance in recent years, due to frequent crises and shocks in the financial markets. The application of the normative and comparative method in work analyzes the exposure of investment companies business to market risks. The paper points out the importance of determining market risks, as well as the types of market risks to which investment companies are exposed, and the importance of introducing new solutions adopted in the European legislation. The application of the proposed solutions based on qualitative and quantitative measures should enable both investment companies surviving on the capital market and providing adequate legal protection to investors. Therefore, the paper emphasizes the need for identifying and early recognition of market risks in investment companies, proposing appropriate measures, assessments and models for managing market risks in the investment companies.

Institutions, Dominant Actors, and Financial Markets: The Case of Venture Capital for Biotechnology in Switzerland

2016 ◽  
Vol 13 (06) ◽  
pp. 1750001 ◽  
Author(s):  
Raimund Hasse ◽  
Eva Passarge
Keyword(s):  
Venture Capital ◽  
Financial Markets ◽  
Capital Market ◽  
Substantial Contribution ◽  
Pharmaceutical Companies ◽  
Investment Strategies ◽  
Research Front ◽  
Loosely Coupled ◽  
Characteristic Features ◽  
Set Up

Since the 1990s, the new economic sociology has directed attention toward markets and, in particular, financial markets. Thus far, neo-institutional theory has not been able to make substantial contribution to this research front. We identify reasons for this shortcoming and aim to expand the scope of institutional analysis by focusing upon the constitution and governance of financial markets. Referring to the case of venture capital markets for biotechnology in Switzerland, it will be shown that the formation of the market has been strongly linked to the big Swiss pharmaceutical companies. Data are presented which indicate that the emerging venture capital market for biotechnology in Switzerland resembles contextual features such as collective arrangements and risk-averse investment strategies. The case illustrates that both the set-up of the market and its characteristic features are only loosely coupled to an abstract worldwide financial market, and, instead, are deeply interwoven with the national and sectoral context.

scholarly journals INVESTMENT RISKS OF INSURANCE COMPANIES THROUGH THE PRISM OF DOMESTIC PRACTICE

2017 ◽  
pp. 34-47
Author(s):  
Tetiana PYSMENNA
Keyword(s):  
Insurance Companies ◽  
Investment Risk ◽  
Investment Strategies ◽  
Insurance Company ◽  
Investment Activity ◽  
Market Risks ◽  
Domestic Practice ◽  
Funds Allocation ◽  
Positive Results ◽  
Different Levels

Introduction. In modern conditions insurance companies has engaged in investment activity under various risks. Management of insurance company can’t influence the market risks. Insurance company can apply the methods of risk management in investment activity. Purpose. The purpose of scientific research is to find out the essence and composition of investment risks of insurance company. Results. The essence of the investment risk of insurance company is found out. The position of investment activity of insurance company along insurance activity under different scientific views is determined. Aggressive, conservative and moderately conservative investment strategies of insurance companies are characterized. The main indicators of investment activity of domestic insurance companies are analyzed. The types of investment risk of insurance company are determined. The main methods of neutralizing the risk of investment activity of insurance company are established. Conclusion. It is concluded that the essence of the investment risk of insurance company belongs to a number of controversial ones. Established, that insurance and investment activities of insurance company are closely linked. It has been found, that aggressive, conservative and moderately conservative investment strategies of insurance companies are different levels of profitability and risk of funds allocation. Over the last years the investment activity of domestic insurance companies showed almost stable positive results. Summarized, that investment risks, associated with incompetent management, the most threaten to insurance company. Avoidance, limitation and diversification are the main methods of neutralizing the risks in investing activity of insurance companies.

The profitability of algorithmic trading systems based on football sentiment

2020 ◽  
Vol 42 (1) ◽  
pp. 33-46
Author(s):  
Raúl Gómez-Martínez ◽  
Camila Marqués-Bogliani ◽  
Jessica Paule-Vianez
Keyword(s):  
Financial Markets ◽  
Investment Decisions ◽  
Futures Market ◽  
Algorithmic Trading ◽  
Investment Strategies ◽  
Measurable Effect ◽  
Behavioural Finance ◽  
Trading Systems ◽  
European Football

Behavioural finance has shown that investment decisions are the result of not just rational but also emotional brain processes. On the assumption that emotions affect financial markets, it would seem likely that football results might have a measurable effect on financial markets. To test this, this study describes three algorithmic trading systems based exclusively on the results of three top European football teams (Juventus, Bayern München and Paris St Germain) opening long or short positions in the next market season of the futures market of the index of each country (MIB (Milano Italia Borsa), DAX (Deutscher Aktien Index) and CAC (Cotation Assistée en Continu). Depending on the outcome of the last game played a long position was taken after a victory and a short position after a draw or defeat. The results showed that the algorithmic systems were profitable in the case of Juventus and Bayern whereas in the case of PSG, the system was profitable, but in an inverse way. This study shows that investment strategies that take account of sports sentiment could have a profitable outcome.

scholarly journals Immunization Strategies for Funding Multiple Inflation-Linked Retirement Income Benefits

Risks ◽  
2021 ◽  
Vol 9 (4) ◽  
pp. 60
Author(s):  
Cláudia Simões ◽  
Luís Oliveira ◽  
Jorge M. Bravo
Keyword(s):  
Interest Rate ◽  
Yield Curve ◽  
Risk Measure ◽  
Management Strategies ◽  
Interest Rate Risk ◽  
Insurance Companies ◽  
Retirement Income ◽  
Investment Strategies ◽  
Immunization Strategies ◽  
The Impact

Protecting against unexpected yield curve, inflation, and longevity shifts are some of the most critical issues institutional and private investors must solve when managing post-retirement income benefits. This paper empirically investigates the performance of alternative immunization strategies for funding targeted multiple liabilities that are fixed in timing but random in size (inflation-linked), i.e., that change stochastically according to consumer price or wage level indexes. The immunization procedure is based on a targeted minimax strategy considering the M-Absolute as the interest rate risk measure. We investigate to what extent the inflation-hedging properties of ILBs in asset liability management strategies targeted to immunize multiple liabilities of random size are superior to that of nominal bonds. We use two alternative datasets comprising daily closing prices for U.S. Treasuries and U.S. inflation-linked bonds from 2000 to 2018. The immunization performance is tested over 3-year and 5-year investment horizons, uses real and not simulated bond data and takes into consideration the impact of transaction costs in the performance of immunization strategies and in the selection of optimal investment strategies. The results show that the multiple liability immunization strategy using inflation-linked bonds outperforms the equivalent strategy using nominal bonds and is robust even in a nearly zero interest rate scenario. These results have important implications in the design and structuring of ALM liability-driven investment strategies, particularly for retirement income providers such as pension schemes or life insurance companies.

scholarly journals Discount, transparency and announcements effects of equity rights offerings: international evidence

2021 ◽  
Author(s):  
Nils-Christian Bobenhausen ◽  
Astrid Juliane Salzmann
Keyword(s):  
Financial Markets ◽  
Information Asymmetry ◽  
Capital Market ◽  
Announcement Effect ◽  
Announcement Effects ◽  
Market Transparency ◽  
International Evidence ◽  
Negative Effect ◽  
Rights Offering ◽  
High Information

AbstractEquity rights offerings and their respective announcement effects have been studied extensively in the literature. Our study expands upon these studies and focuses on those announcement effects and the relation between the discount of an equity rights offering and the announcement effect. Previous theoretical and empirical analyses show that firms can signal their quality via the discount in an equity rights offering and demonstrate a negative relation between the discount and the announcement effect. We argue that this link is only relevant in environments where signalling is possible and necessary. These are financial markets with a particularly low level of capital market transparency, i.e. high information asymmetry. We calculate announcement effects for an international sample of equity rights offerings and show that the negative effect of the discount on announcement effects can only be observed in environments with a low capital market transparency. Hence, our study estimates announcement effects across several different countries and is thus among the first to analyse signalling considerations for equity rights offerings in different transparency environments.

scholarly journals The future of financial markets and regulation: what strategy for Europe?

foresight ◽  
2014 ◽  
Vol 16 (2) ◽  
pp. 95-108 ◽  
Author(s):  
Jean-Baptiste Gossé ◽  
Dominique Plihon
Keyword(s):  
Financial Markets ◽  
Capital Market ◽  
Financial Stability ◽  
Design Methodology ◽  
Financial Integration ◽  
Content Type ◽  
Realistic Option ◽  
The Future ◽  
Unstable Environment ◽  
Insight Into

Purpose – This article aims to provide insight into the future of financial markets and regulation in order to define what would be the best strategy for Europe. Design/methodology/approach – First the authors define the potential changes in financial markets and then the tools available for the regulator to tame them. Finally, they build five scenarios according to the main evolutions observed on the financial markets and on the tools used by the regulator to modify these trends. Findings – Among the five scenarios defined, two present highly unstable features since the regulator refuses to choose between financial opening and independently determining how to regulate finance in order to preserve financial stability. Three of them achieve financial stability. However, they are more or less efficient or feasible. In terms of market efficiency, the multi-polar scenario is the best and the fragmentation scenario is the worst, since gains of integration depend on the size of the new capital market. Regarding sovereignty of regulation, fragmentation is the best scenario and the multi-polar scenario is the worst, because it necessitates coordination at the global level which implies moving further away from respective national preferences. However, the more realistic option seems to be the regionalisation scenario: this level of coordination seems much more realistic than the global one; the market should be of sufficient size to enjoy substantial benefits of integration. Nevertheless, the “European government” might gradually increase the degree of financial integration outside Europe in line with the degree of cooperation with the rest of the world. Originality/value – Foresight studies on financial markets and regulation are quite rare. This may be explained by the difficulty to forecast what will be their evolution in the coming decades, not least because finance is fundamentally unstable. This paper provides a framework to consider what could be the best strategy of regulators in such an unstable environment.

How can an economic scenario generation model cope with abrupt changes in financial markets?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Yi-Hsi Lee ◽  
Ming-Hua Hsieh ◽  
Weiyu Kuo ◽  
Chenghsien Jason Tsai
Keyword(s):  
Financial Markets ◽  
Large Scale ◽  
Moving Average ◽  
Insurance Companies ◽  
Scenario Generation ◽  
Autoregressive Moving Average ◽  
Generation Model ◽  
Content Type ◽  
Abrupt Changes ◽  
Key Issues

PurposeIt is quite possible that financial institutions including life insurance companies would encounter turbulent situations such as the COVID-19 pandemic before policies mature. Constructing models that can generate scenarios for major assets to cover abrupt changes in financial markets is thus essential for the financial institution's risk management.Design/methodology/approachThe key issues in such modeling include how to manage the large number of risk factors involved, how to model the dynamics of chosen or derived factors and how to incorporate relations among these factors. The authors propose the orthogonal ARMA–GARCH (autoregressive moving-average–generalized autoregressive conditional heteroskedasticity) approach to tackle these issues. The constructed economic scenario generation (ESG) models pass the backtests covering the period from the beginning of 2018 to the end of May 2020, which includes the turbulent situations caused by COVID-19.FindingsThe backtesting covering the turbulent period of COVID-19, along with fan charts and comparisons on simulated and historical statistics, validates our approach.Originality/valueThis paper is the first one that attempts to generate complex long-term economic scenarios for a large-scale portfolio from its large dimensional covariance matrix estimated by the orthogonal ARMA–GARCH model.

The Capital Market Authority Effectiveness in the Regulation of Financial Markets perspectives from the financial sector actors

2012 ◽  
Vol 02 (11) ◽  
pp. 15-24
Author(s):  
Charles Kombo Okioga
Keyword(s):  
Financial Markets ◽  
Financial Market ◽  
Capital Markets ◽  
Capital Market ◽  
Financial Regulation ◽  
International Standards ◽  
Market Regulation ◽  
Financial Market Regulation ◽  
Market Participants ◽  
New Business

Capital Market Authority in Kenya is in a development phase in order to be effective in the regulation of the financial markets. The market participants and the regulators are increasingly adopting international standards in order to make the capital markets in sync with those of developed markets. New products are being introduced and new business lines are being established. The Capital Markets Authority (Regulator) is constantly reviewing existing regulations and recommending changes to regulate the market properly. Business lines and activities are being harmonized by market participants to provide a one stop solution in order to meet the financial and securities services needs of the investors. The convergence of business lines and activities of market intermediaries gives rise to the diversity of a firm’s business operations to meet multiplicity of regulations that its activities are subject to. The methodology used in this study was designed to examine the relationship between capital markets Authority effective regulation and the performance of the financial markets. The study used correlation design, the study population consisted of 30 employees in financial institutions regulated by Capital Markets Authority and 80 investors. The study found out that effective financial market regulation has a significant relationship with the financial market performance indicated by (r=0.571, p<0.01) and (r=0.716, p≤0.01, the study recommended a further research on the factors that hinder effective financial regulation by the Capital Markets Authority.

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