Risk Management Instruments Research Articles

KEY STAGES AND INNOVATIVE APPROACHES IN RISK MANAGEMENT UNDER UNCERTAINTY

The purpose of the article is to analyze in detail the process of risk management at enterprises, in particular, its key stages. In addition, the article aims at studying the current instruments of bankruptcy risk management which can be implemented in the modern economy. The relevance of the article is stipulated by the need to improve approaches to risk management in today's dynamic business environment, where enterprises are constantly facing financial and operational threats. Of particular importance is bankruptcy risk management, since economic instability and high level of competition require effective mechanisms to protect financial stability. The following methods are used in the study: the method of analysis and synthesis - for a structured consideration of the stages of the risk management process, identifying the relationships between them and forming a holistic picture of management actions at each stage; the method of logical generalization - for formulating general conclusions and recommendations on the stages and tools of risk management based on the analysis of literature and practical examples. The result of the study is to determine the essential characteristics of the main stages of the enterprise risk management process and the relevant tools for managing the bankruptcy risk. This includes: a structured description of the key stages of risk management – from risk identification and assessment to monitoring and control, which ensures a systematic approach to responding to threats; analysis of current tools for managing bankruptcy risk – identification of tools that facilitate early detection of risks and support the financial stability of the enterprise. The practical value of the article lies in providing enterprises with a clear description of the risk management process, which includes the main stages from identification to monitoring and control, allowing companies to take a more systematic approach to risk management and reducing the likelihood of negative financial consequences. The use of the current tools for managing bankruptcy risk described in the article provides an opportunity to quickly identify early signs of financial instability, which helps to maintain their financial stability. In addition, the proposed recommendations can be integrated into the enterprise management system, creating a flexible and adaptive model to maintain stable development in the face of economic uncertainty.

Predicting Gold Prices Through Machine Learning with Economic Indicators and Feature Selection Methods

The enormous fluctuation of the gold price in international markets gives predictive analysis an indispensable place for business firms, economists, and investors. With this in mind, this research aims to construct a machine learning model for gold price prediction based on past information and identify some leading patterns affecting the prices of such a commodity. The model thus covers a range of related financial and economic factors, be it past gold prices and inflation metrics, oil price vagaries, worldwide market indexes, and interest rate movements. Using machine learning algorithm approaches like Support Vector Machine (SVM), Random Forest, as well as Linear Regression approaches, the system is set to identify complex relationships prevailing in the data and provides predictions for short-term movements and long-term movements concerning price. The model will be trained and validated using historical data that includes the history of the gold price. In this respect, the findings of the study are relevant to stakeholders in financial forecasting who could make informed investment decisions. Additionally, the paper has outlined the method for feature selection that determines which factors are dominant in explaining the fluctuation of the gold price. The goal of the model, therefore, is to enhance its performance through prediction accuracy reduction in noise, recursive elimination of features, and application of correlation analysis. As a result, a robust evaluation of several machine algorithms, including support vector machines, allows the selection of a suitable model that best solves the prediction task. This approach to forecasting will therefore aid in the creation of instruments for risk management, automated trading techniques, and financial strategies for an individual as well as for organizations. Keywords: Support Vector Machine, Random Forest, machine learning, and gold price prediction; economic indicators, feature selection, and linear regression in the field of financial forecasting; erratic behaviour; and risk management.

Analisis Efektivitas Penggunaan Instrumen Derivatif Dalam Manajemen Risiko Keuangan

This study aims to analyze and determine the effectiveness of the use of derivative instruments in financial risk management. This research approach collects data through literature studies, which involve reading literature from various sources including books, journals and reports using qualitative and deductive approaches. The findings in this study are that risk cannot be avoided but can be minimized, one thing that can minimize risk is derivative instruments. Derivative instruments are developed in order to manage financial risk. Therefore, there are four derivative instruments used as a company strategy in minimizing financial risk, namely options, forward contracts, future co ntracts, and swaps.

Enhancing Sustainability through Weather Derivative Option Contracts: A Risk Management Tool in Greek Agriculture

This paper investigates the efficacy of weather derivatives as a risk management tool in the agricultural sector of Naousa, Greece, focusing on tree crops sensitive to temperature variations. The specific purpose is to assess how effectively weather derivative options can mitigate financial risks for farmers by providing strategic solutions. The study assesses the strategic application of Heating Degree Days (HDD) index options and their potential to alleviate economic vulnerabilities faced by farmers due to temperatures fluctuations. Employing different strike prices in Long Call and Straddle options strategies on the HDD index, the research offers tailored risk management solutions that cater to varying risk aversions among farmers. Moreover, the study applies the Value at Risk (VaR) methodology to quantify the financial security that weather derivatives can furnish, revealing a significantly reduced probability of severe financial losses in hedged scenarios compared to no-hedge conditions. Results show that all implemented strategies effectively enhance financial outcomes compared to scenarios without hedging, highlighting the exceptional utility of weather derivatives as risk management tools in the agricultural sector. Strategy 4, which exhibits the lowest VaR, emerges as the most effective, providing substantial protection against adverse weather conditions. This research supports the notion that weather derivatives can substantially contribute to the economic sustainability of rural economies, influencing policy decisions toward enhancing financial instruments for risk management in agriculture.

Development Trends of Insurance and Reinsurance Brokers in Georgia

Insurance is a very common and effective tool for managing financial risks. It also assumes the transfer of the risk in full or in part, but in this case the risk is transferred to the insurance company. Let's remember that insurance is one of the financial instruments of risk management, and not the only one. At the same time, it should be noted that insurance is a non-permanent instrument, and it cannot be used for all risks and in all risky situations. There are quite frequent cases when insurance is used together with other risk management tools, that is, it is part of the risk management program. Чачастую рашовые компании themselves require the client to reduce the existing primary risks with the help of physical instruments before signing the insurance contract. For example, in agriculture, it is completely unacceptable to manage risks there only by means of insurance. the first Keywords: insurance broker, insurance mediator, insurance product, sales channel, independent agent.

El Reglamento de Inteligencia Artificial de la Unión Europea: regulación de riesgos y sistemas de estandarización

AI has been consolidated in recent years as a central line of action in the strategy of public administrations, and the AI Regulation approved by the EU intends to become a pioneering global standard for the regulation of this technology. This article analyses the nature and main characteristics of this regulation approved on 13 March 2024 by the European Parliament. The study conceptualises the EU Regulation as part of a normative trend, existing both at European and international level, consisting of the regulation of risks and situations of uncertainty. On this premise, the paper analyses the legal architecture of the norm, which revolves around a conformity assessment system that relies, in its turn, on three elements: (1) risk management instruments applicable to AI developers and implementers, (2) a procedure for the development of technical standards that will determine the specific content of the obligations of the regulation, and (3) the creation of a governance system for the implementation and verification of such obligations.

Water Supply Security—Risk Management Instruments in Water Supply Companies

Piped drinking water supplies are exposed to a range of threats. Changing hazard situations arise from climate change, digitisation, and changing conditions in the power supply, among other things. Risk and crisis management adapted to the hazard situation can increase the resilience of the piped drinking water supply. Analogous to the risk management system, this article describes a methodology that ranges from hazard analysis with the prioritisation of 57 individual hazards to vulnerability assessment with the help of balance sheet structure models (BSM) and the planning and implementation of measures to increase the resilience of the piped drinking water supply in a targeted manner. The work steps mentioned build on each other and were tested using the case study of a water supply company in Saxony (Germany). As a result, priority hazards are identified, the remaining supply periods and replacement and emergency water requirements are determined as part of the vulnerability assessment, and finally, planning principles for increasing resilience are documented. The methodology focuses primarily on practicable application by water supply companies.

The combination of climate information services in the decision-making process of farmers to reduce climate risks: Application of social cognition theory

One of the main instruments of risk management and climate risk reduction in the agricultural sector is the use of climate information services (CIS). Meteorological information can be useful for society by increasing the efficiency of resource consumption and helping to improve decision-making management. However, there is a gap between the production and implementation of weather forecasts, and that is the lack of practical use of weather forecasts in the agricultural decision-making process. In doing so, this research was conducted with the main objective of identifying components influencing the utilize of CIS by farmers in southwest Iran. The research utilized social cognitive theory (SCT) as the underlying framework, employing a survey method and employing Structural Equation Modeling (SEM) for analysis. The research encompassed all farmers residing in Dezful city within the Khuzestan province, located in the southwest of Iran. The results showed that the variables of SCT, namely outcome expectations, perception of others’ behavior, self-efficacy, socio-structural, and behavioral intentions are very powerful in identifying factors affecting farmers’ use of CIS and can account for 76.4% of the variance of farmers’ behavior. Therefore, these research results can provide essential help to authorities to mitigate the negative impacts of climate change on agriculture.

Risk management under weighted limited expected loss

We present and solve an optimal asset allocation problem under a weighted limited expected loss (WLEL) constraint. This formulation encompasses the risk management problem with a limited expected loss (LEL) constraint as a specialized instance and offers a pertinent internal risk management instrument for firms. We observe that a WLEL constraint makes the optimizing investor pursue less volatile payoffs than the unconstrained Merton solution. Compared to the LEL-constrained problem with the same weighted default threshold, the WLEL optimal terminal wealth displays a less dispersed distribution with a smaller variance, suggesting a more secure risk management framework. Conducting a comprehensive equilibrium analysis in the presence of a WLEL risk manager, we validate the relatively conservative investment approach undertaken by the WLEL manager. Subsequently, we expand our findings to encompass broader incomplete market settings, wherein the uniqueness of the equivalent local martingale measure is not assured.

The Role of Financial Instruments in Corporate Exchange Rate Risk Management

As international investment increases with the process of economic globalization, managing exchange rate risk efficiently has become one of the most significant strategies for companies to reduce risk and make more profits. Due to the need to consider numerous internal and external factors, risk management is a sophisticated decision that executives need to make effectively. On the basis of accentuating the magnitude of hedging exchange rate risk for corporations and combining previous research findings and theoretical analysis, this research introduces some pragmatic approaches for firms to choose and utilize suitable financial instruments in hedging exchange rate risk, such as the rational use of financial instruments to hedge risks, the use of short-term and long-term foreign currency derivatives to reduce exchange rate risks, and the impact of board structure on hedging activities. The content of the analysis can provide companies with a deeper understanding of the ways to select and utilize the most appropriate financial instruments for risk management, thus improving corporate efficiency and achieving corporate objectives. The study would act as an available tool for corporations to improve efficiency and achieve their goals.

A balance sheet analysis of monetary policy effects on banks

Monetary policy operations affect bank balance sheets (BBSs). This study develops a balance sheet model to examine the impacts of monetary policy operations on banks' ability to supply funds. That ability is assessed using the balance sheet capacities provided by regulatory risk management instruments. The balance sheet approach views a monetary policy operation as a transaction between the central bank and a commercial bank, modeling the transaction as multiple changes to the BBS. This study identifies and distinguishes the effects of multiple changes in the BBS on balance sheet capacity. A balance sheet change resulting from a monetary policy operation may positively or negatively affect balance sheet capacity. Thus, a monetary policy may have a positive and a negative effect simultaneously. Positive (negative) effects result from balance sheet changes that reduce (increase) bank risks, as measured by regulations. As regulatory stringency decreases, the positive effects increase, whereas the negative effects remain unchanged. A BBS capacity channel of monetary policy is also shown.

Significance and perspectives for development of commodity exchange trade in agricultural products

Exchanges are intermediaries in the trade of commodities, financial instruments that have commodities in their base or credit instruments that are secured by commodities. Commodity exchanges have gained in importance in recent decades. Commodity exchanges have evolved from the place where the physical purchase and sale of goods takes place to trade in commodity derivatives where standardized contracts−futures and options−are traded. The role of commodity exchanges in the development of the agribusiness sector has changed significantly from the initial stage of development when in the beginning the main role was to ensure efficient and transparent exchange of commodities, until the early 1970s when instruments were developed to enable risk management in the agribusiness sector. The largest volume of tradе on modern commodity exchanges is realized in standardized derivative contracts. Financial derivatives are one of the most successful financial innovations, with the volume of turnover increasing significantly. Within this chapter, special attention is paid to the analysis of the situation in the field of commodity exchange trading in the Western Balkan region. According to the results of the analysis, developed agricultural commodity exchange trade is not available to the farmers in these countries, nor are business risk management instruments available to participants in countries with developed commodity exchange systems. Analyses have shown that the sole commodity exchange with a significant volume of trade in the countries of the Western Balkans is the Novi Sad commodity exchange, trading on the spot and non‒standardized term market. In terms of the directions of development of regional commodity trade, the experience so far shows that high trading volume is a paramount for well‒developed commodity exchange. Therefore, the path to the development of commodity exchange trading is the establishment of a regional commodity exchange that would be a place of trade for all of the Western Balkan’s countries. By establishing a regional commodity exchange, participants in the agricultural sector would have the opportunity to securely and transparently trade and manage the price risk that have a pronounced volatility in recent years.

Аналіз наукових підходів до розуміння ризик-менеджменту логістичних систем

The purpose of the study is to systematize the views of foreign and Ukrainian scholars on the risk management of logistics systems and to develop the author’s approach to understanding the concept of logistics system. The article defines that the use of risk management instruments is due to a number of advantages, in particular, the following: improvement of strategic planning at the enterprise; improving the efficiency of the production and economic system of the enterprise; optimization of the use of material resources of the enterprise; improvement of communication channels between employees and management of the enterprise; identification of risks that adversely affect the operation of the enterprise; development of a methodology for identifying risks that impact the operation of the enterprise. To determine the instruments for risk management of logistics system, foreign experience in studying this issue is analyzed. The features of the new paradigm in comparison with traditional approaches to risk management are highlighted as follows: continuous management process, coordination of management decisions by the head of the enterprise, a wide range of analyzed risks. Approaches to the definition of the concept of logistics system are analyzed and the author’s own vision of this concept is proposed in the following wording: it is a complex of enterprise structures, processes, infrastructure elements and information flows aimed at planning, coordinating and managing the movement of material and information flows in order to ensure the efficiency and competitiveness of business, which includes such aspects as inventory management, warehousing, transportation, management of supply and distribution, as well as information processing and supplier and customer relationship management in order to ensure optimal use of resources, minimization of costs, ensuring high quality of customer service and timely supplies. Risk management of a logistics system is a complex, multifaceted process that is aimed at ensuring efficient, productive, stable and reliable operation of the logistics system by identifying, assessing and managing risks that affect the performance of the enterprise.

Determinants of Khat Farmers’ Awareness of Agricultural Insurance: Evidence of Igembe North Sub County, Meru County, Kenya

In Kenya, majority of farmers rely on rain-fed agricultural systems hence making risk and uncertainty an integral part of farming. Weather conditions can directly impact agricultural output and performance. Mitigating these hazards is a top objective for avoiding revenue loss and improving smallholders' wellbeing. Agricultural insurance, a long-standing idea, is now recognized and supported by public and private organizations as a crucial risk management instrument in light of climate change concerns. Awareness of agricultural insurance plays a crucial role in its adoption, as it helps individuals understand the benefits and protections it offers against unexpected agricultural financial losses. Ultimately, widespread understanding of insurance options and their value can lead to higher adoption rates, ensuring more individuals and families are adequately protected. This paper's data was collected from 323 khat farmers in Meru County, Kenya. According to empirical findings, credit access and occupation had a positive and significant effect on awareness of agricultural insurance. The farmer's age and the gender of the household decision maker had a negative and significant effect on awareness of agricultural insurance. This study finds that credit access has a significant impact on khat farmers' awareness of agricultural insurance. The study found that awareness was proportionate to loan access hence recommends strengthening farmers' credit facilities to access more financial resources. The findings of this study will provide decision-makers with evidence-based tools for effectively marketing and establishing demand-driven insurance solutions to fulfil the needs of khat farmers.

A Sustainable Risk Management Model and Instruments for Young Farmers in EU Agriculture

Young farmers are ready to embrace innovation, smart agriculture, and science-based research to ensure that their work has long-term viability, profitability, and productivity. To prevent the farming population from aging and to ensure farming success, financial support must be provided through instruments that are specifically aimed at young farmers. It is necessary that youth have access to agricultural land policy throughout the EU for the agricultural sector to remain sustainable. In the European Union, young farmers manage farms that are in the lowest-size group. The limited financial possibilities available to young people in the EU exacerbate this. The relationships between risk management instruments and other interventions (such as direct payment and ex-post instruments) and the integration of these tools into national and EU policy frameworks must be thoroughly examined in future policy. Evaluating the possible repercussions of risk management being widely implemented as well as measuring the anticipated variations in farm revenue and the volatility of agricultural commodity prices are equally crucial. Therefore, the present article utilized extant data to conduct a comparative analysis and ultimately present a set of multidisciplinary and quantitative indicators of supportive measures for young farmers in the EU, while also identifying the requisite areas for improvement.

The Legal Nature of Futures Contracts in Commodity Exchanges in Jordanian Legislation

Legal jurisprudence tends to classify futures settlement contracts in commodity exchanges as speculative and betting contracts, based on cash settlement as one of the methods for settling futures contracts. Sometimes, these contracts are settled by the difference between the opening and closing prices over a specified period. Such classification is a limited perspective based on legal jurisprudence viewing futures contracts as ordinary sales contrary to reality. Settlement futures contracts in commodity exchanges are distinctive contracts, and their uniqueness is derived from the nature of the assets traded. These contracts involve essential commodities that play a crucial role in national economies. Moreover, they are subject to a specific legal framework that differs from the legal system governing ordinary contracts. These contracts serve various purposes beyond buying and selling for immediate consumption and trade. They function as financial instruments for investment and risk management, serving purposes beyond simple consumption and immediate trade. The essential distinction that has led to confusion about futures settlement contracts is the time gap between their formation and execution, unlike ordinary contracts that are immediately executed.In this study, we attempted to unveil the ambiguity surrounding futures settlement contracts in commodity exchanges by highlighting their true nature as financial instruments playing a significant role in national economies. This reality has given futures settlement contracts a distinct legal nature.

Exploring The Factors That Influence Life Insurance Sales Personnel Performance in Nigeria

To financial analysts, life insurance confers the benefits of investment as well as serve as an instrument of risk management on policyholders. This paper sought to ascertain the roles of organizational factors on life insurance sales personnel performance in Nigeria’s marketplace. This study specifically examines the influence of selection and recruitment, compensation, training, and sales territory on life insurance sales personnel performance. The descriptive survey research design was adopted in the study. The population of study are the entire life insurance sales personnel in the twenty (20) quoted firms in Nigeria. However, the accessible population are the sales personnel in the three (3) top most listed firms with headquarter in Lagos state. Two hundred and fifty (250) copies of a structured questionnaire was administered to sales managers, unit managers and sales executives of AIICO, Leadway Assurance and FBN life. The study found that all the independent variables exhibit significant relationship with sales personnel performance. Specifically, employee compensation exert the strongest influence on sales person’s performance. Closely following is sales territory while selection and recruitment exert the least influence on sales force performance. This study conclude that the independent variables exhibit positive and significant influence on life insurance sales personnel performance. The paper recommend among others that operational managers desirous of outstanding marketplace performance should hire only high caliber employees, thoroughly train, adequately and competitively compensate and equip the sales force with sufficient information that would enable them thrive in their assigned sales territories.

Co-Curricular Activity Risk Management (CoARM) Development and Validation: A Fuzzy-Delphi Method

Co-curricular activities encompassing uniform units, clubs, and associations are compulsory courses in all educational institutions in Malaysia. The implementation of co-curricular activities requires neat preparation in order to reduce exposure to the risk of loss, injury, and accidents during the activities. Therefore, this study aimed to produce an instrument for effective co-curricular activity risk management (also known as (CoARM) to guide administrators, lecturers, and students, in conducting safe co-curricular activities, especially at Malaysian teacher education institute (TEIM). This study used the Fuzzy-Delphi method involving 30 experts in the field of co-curriculum from public universities and TEIM. The questionnaire was constructed based on the analysis of field expert interviews and a literature review. It was then sent for expert agreement on the elements, sub-elements, and content of CoARM at TEIM. The findings distinguish three (3) elements and fifteen (15) sub-elements of CoARM when planning and implementing co-curricular activities. The first element was the human element involving trainers, participants, support staff, service providers, and external agencies. The second element, the equipment element, involved anchorage, accommodation, facilities for special activity equipment, and safety equipment. The third element was the environment element with the sub-elements of weather, location, activity routes, security threats, and rescue routes. The CoARM instrument is expected to provide new knowledge as well as to serve as a guide in the field to increase the public’s confidence in organising co-curricular activities at Malaysian educational institutions and as a reference source in the future construction of CoARM modules.

Towards a holistic approach to sustainable risk management in agriculture in the EU: a literature review

Agriculture is one of the sectors most exposed to a plethora of risky phenomena such as weather, pests and diseases, changes in prices and government policies, instability of global markets. We review the literature on risk management (RM) in agriculture focusing on five key issues: i) why evidence on RM is often controversial; ii) how farmers behave in selecting among available RM instruments; iii) why some of these instruments are underutilised; iv) how to assess the impacts of innovative RM tools to (further) improve their design; v) how agricultural policy measures aimed at increasing the environmental sustainability of the sector could affect RM choices. We address all these issues to get a holistic vision of RM, and point at areas where further analyses are needed.

Corporate risk and financial asset holdings

We investigate the impact of corporate risk on financial asset holdings in China from 2007 to 2020. This study constructs a more precise measurement of financial assets than prior studies, and employs a new textual measure of comprehensive firm risk. Our results show that firms with higher risks hold more financial assets, especially more short-term financial assets, to enhance liquidity and financial performance. In the cross-sectional analyses, we find that the positive relation between risk and financial asset holdings is more pronounced when firms face greater financial constraints, have weaker corporate governance, and have poorer growth prospects. We further find that financial asset holdings alleviate (worsen) the negative impact of risk on firms' real investments in capital expenditures (R&D investments). These results suggest that in the impact of risk on capital expenditures (R&D investments), the positive (negative) role of financial assets in improving liquidity and financial performance (worsening uncertainty and crowding out real investments) appears to be dominant. Lastly, we break down a firm's comprehensive risk into four distinct risk subcategories: financial risk, litigation risk, systematic risk, and idiosyncratic risk. We find that firms tend to increase their holdings of financial assets in response to higher financial and litigation risks. Our novel evidence suggests that firms' higher risks lead to more investments in financial assets, which in turn affect the negative impact of risk on firms' real investments. Overall, our findings highlight the importance of financial assets as a unique risk management instrument.