Optimal Asset Allocation Subject to Withdrawal Risk and Solvency Constraints

This paper investigates the optimal asset allocation of a financial institution whose customers are free to withdraw their capital-guaranteed financial contracts at any time. In accounting for the asset-liability mismatch risk of the institution, we present a general utility optimization problem in a discrete-time setting and provide a dynamic programming principle for the optimal investment strategies. Furthermore, we consider an explicit context, including liquidity risk, interest rate, and credit intensity fluctuations, and show by numerical results that the optimal strategy improves both the solvency and asset returns of the institution compared to a standard institutional investor’s asset allocation.

PENGARUH PEMBAGIAN DIVIDEN MELALUI MODEL BLACK-SCHOLES

Stock trading has a risk that can be said to be quite large due to fluctuations in stock prices. In stock trading, one alternative to reduce the amount of risk is options. The focus of this research is on European options which are financial contracts by giving the holder the right, not the obligation, to sell or buy the principal asset from the writer when it expires at a predetermined price. The Black-Scholes model is an option pricing model commonly used in the financial sector. This study aims to determine the effect of dividend distribution through the Black-Scholes model on stock prices. The effect of dividend distribution through the Black-Scholes model on stock prices results in the stock price immediately after the dividend distribution being lower than the stock price shortly before the dividend distribution

Risk Analysis of Microfinance Conversion Based on ISO 31000 PT. Bank BRI Syariah. Tbk Aceh

Aceh government issued Aceh Qanun No. 11 of 2018 about Sharia Financial Institutions, which demands that all financial contracts in Aceh adhere to Sharia principles. This regulation has an impact on the Aceh region's financial business. PT Bank BRI Tbk Aceh has decided to conversion entire financing and funding portfolio to one of its sharia-compliant subsidiaries, PT Bank BRIsyariah Tbk. microfinance portfolio is bigger than other segments. By constructing a risk analysis based on ISO 31000, this study assesses the business risk associated with converting PT Bank BRIsyariah Tbk's microfinance segment in the Aceh region. The results indicate that twenty risks have been identified and evaluated. Risk can be classified into five broad categories: operational, reputational, strategic, credit, and compliance. The risk analysis results indicate that the risk is significant and requires immediate attention. Operational risk is associated with differences in data capacity, servers, the core banking system, and financing applications, whereas strategic risk is associated with differences in financial analysis, guarantee provisions, and regulations.

The Hidden Role of Contract Terms: The Case of Credit Card Minimum Payments in Mexico

This paper argues that thresholds in financial contracts act as implicit nudges in consumers’ decisions. Exploiting a regulatory change to credit card minimum payments in Mexico, we find that a 1-percentage point change in minimum payments leads to a 0.87-percentage point change in actual payments, both expressed as a percentage of total balances. We decompose the effect of minimum payments into a constraining effect and a reference effect. The former captures the effect of minimum payments as a binding constraint and accounts for 59% of its total effect. The latter captures any remaining impact of changes in minimum payments beyond their constraining effect and represents 41% of the total. In turn, 67% of the reference effect is explained by the multiple heuristic: the tendency of consumers to pay whole-number multiples of the minimum payment. This paper was accepted by Kay Giesecke, finance.

Do central counterparties reduce counterparty and liquidity risk? Empirical results

A central counterparty (CCP) interposes itself between buyers and sellers of financial contracts to extinguish their bilateral exposures. Therefore, central clearing and settlement through a CCP should affect how financial institutions engage in financial markets. Though, financial institutions’ interactions are difficult to observe and analyze. Based on a unique transactional dataset corresponding to the Colombian peso non-delivery forward market, this article compares—for the first time—networks of transactions agreed to be cleared and settled by the CCP with those to be cleared and settled bilaterally. Networks to be centrally cleared and settled show significantly higher connectivity and lower distances among financial institutions. This suggests that agreeing on central clearing and settlement reduces liquidity risk. After CCP interposition, exposure networks show significantly lower connectivity and higher distances, consistent with a reduction of counterparty risk. Consequently, evidence shows CCPs induce a change of behavior in financial institutions that emerges as two distinctive economic structures for the same market, which corresponds to CCP’s intended reduction of liquidity and counterparty risks.

Global Index on Financial Losses Due to Crime in the United States

Despite the potential importance of crime rates in investments, there are no indices dedicated to evaluating the financial impact of crime in the United States. As such, this paper presents an index-based insurance portfolio for crime in the United States by utilizing the financial losses reported by the Federal Bureau of Investigation. The objective of our paper is to introduce new risk hedging financial contracts for crime, consistent with dynamic asset pricing. Underlying the index, we hedge the investments by issuing marketable European call and put options and providing risk budgets. These budgets show that real estate, ransomware, and government impersonation are the main risk contributors in our index. Next, we evaluate the performance of our index via stress testing to determine its resilience to economic crisis. Of all the factors considered in this study, unemployment rate has the potential to demonstrate the highest systemic risk to the portfolio. Our portfolio will help investors envision risk exposure in the market, gauge investment risk based on their desired risk level, and hedge strategies for potential losses due to economic crashes. In conclusion, we provide a basis for the securitization of insurance risk from certain crimes that could forewarn investors to transfer their risk to capital market investors.

Virtual Migration through Online Freelancing: Evidence from Bangladesh

Youth unemployment is a major issue in many developing countries, particularly in locations not well connected with large urban markets. A limited number of available job opportunities in urban centres may reduce the benefit of policies that encourage rural–urban migration. In this project, we investigated the feasibility of ‘virtual migration’, by training rural youth in Bangladesh to become online freelancers, enabling them to export their labour services to a global online marketplace. We did this by setting up a ‘freelancing incubator’, which provided the necessary workspace and infrastructure – specifically, high-speed internet connectivity and computers. Close mentoring was also provided to participants to assist in navigating the competitive online marketplace. We show the exciting potential of online work for improving the incomes of poor youth in developing countries. We also highlight the constraints to this type of work: financing constraints for the high training cost, access to the necessary work infrastructure, and soft skills requirements to succeed in the market. We also shed light on some promising possibilities for innovative financial contracts and for ‘freelancing incubators’ or ‘virtual exporting companies’ to assist students in their sourcing of work and skills development.

Part VII International Securities, Including Markets and Clearing Systems, 24 Islamic Capital Markets

This chapter focuses on Islamic finance, which refers to financial activities conducted through a variety of financial contracts that comply with Shar?ah rules and principles as derived from primary and secondary sources. It explains the primary sources are the Quran, the Holy Book of the Muslims, and the Sunnah, the way of life prescribed as normative in Islam. It also mentions the secondary sources, which refer to the conclusions of legal reasoning by approved techniques and competent scholars. This chapter discusses modern Islamic finance, which can be seen as a product of the end of the colonial era. It notes that the first Islamic bank, a savings association, was established in Egypt in 1961 and the first modern commercial Islamic bank, Dubai Islamic Bank, was established in the United Arab Emirates in 1975.