Financial Risk Management Methods Research Articles

The concept of increasing the efficiency of financial risk management based on the application of new digital technologies

Aim. Development of the author’s concept of increasing the efficiency of financial risk management on the basis of application of the technology of creating and using the digital twin of the enterprise.Objectives. To formalize the problems of existing approaches to solving the problems of financial risk management of enterprises of the real sector of economy; to identify trends in the development of digital twins, to formulate the advantages of their practical application and to give the author’s interpretation of the concept of “digital twin of the enterprise”; to build and substantiate a multilayer system of indicators of the digital twin of the enterprise in the context of improving the efficiency of financial risk management; to develop the principles of building a digital twin of the enterprise, focused on solving the problems of financial risk management.Methods. The research was carried out on the basis of system approach, in the process of realization of which the methods of synthesis, logical comparative, factor and graphical analysis, basic provisions of financial risk management and the results obtained in domestic and foreign scientific literature on the problems of realization of approaches and methods of financial risk management were used.Results. The author’s concept of increasing the efficiency of financial risk management based on the application of new technologies for creating digital twins is proposed. In particular, by means of formalizing the problems of existing approaches to solving the problems of financial management, identifying trends in the development of methodology and technologies for creating digital twins, the idea of increasing the efficiency of financial risk management on the basis of creating a digital twin of the enterprise is outlined. The multilayer system of indicators defining the structure of this digital twin is proposed and substantiated, the tasks are defined and the principles of its construction oriented to solving the tasks of financial risk management are developed. The financial kernel of the digital twin of the enterprise is constructed, containing the contours of formation of financial indicators common for different enterprises, determining the achievement of the objectives of financial risk management and its efficiency. The qualitative substantiation of increasing the efficiency of financial risk management with the application of the methodological basis for the creation and use of digital twins proposed in the article is given.Conclusions. Conceptual provisions of creation and use of digital twins for the purposes of financial risk-management, given in the article, create a theoretical and methodological basis for increasing the efficiency of financial risk-management taking into account the use of new digital technologies and can serve as a basis for practical construction of effective systems of financial risk-management at enterprises of the real sector of economy.

FINANCIAL MECHANISM IN THE SYSTEM OF ECONOMIC VECTORS OF DEVELOPMENT OF HOTEL AND RESTAURANT AND AGRICULTURAL ENTERPRISES

The purpose of the work is to study the aspects of the financial mechanism of the hotel-restaurant and agricultural sectors of the economy that interact in the market for the provision of services and sales of products, the definition of its constituent elements, the justification of the proposal to improve the financial instruments of state influence on solving the problems of development of the hotel-restaurant sector and the agricultural sector in the conditions of the emergence of new risks and threats, as well as the need for Ukraine's integration into the global economic space. Results. Thus, it can be argued that the increase in the production of crop products contributes to the increase in the export potential of agriculture. Thanks to the introduction of a preferential regime for rural and urban products. At present, support for the main branches of production (agriculture, food industry) will provide an opportunity to ensure domestic demand and satisfy external demand. Ukraine has joined the countries of the world, which are committed to ensuring sustainable development in accordance with the global SDGs. In 2019, the directions of the country's economic audit and vectors of economic development until 2030 were developed in Ukraine. This document defines 30 development tasks and 170 basic indicators for achieving economic development, taking into account the specifics of the country. An important element in ensuring Ukraine's sustainable development is the financial component. This can be achieved by improving the functioning of certain sectors of the Ukrainian economy. The strategic importance of agricultural development is highlighted, and the interdependence of GDP growth and agricultural exports is calculated. The financial mechanism is influenced by world financial processes and globalisation, therefore it is expedient to adapt the leading experience of foreign countries. International practice shows that the reform of the financial mechanism of agricultural enterprises is carried out mainly at the expense of strengthening the direct and indirect levers of state influence. Government influence is exercised through price regulation of agricultural products and farm incomes, budgetary financing of agricultural activities, provision of affordable credit, transparent and comprehensible taxation, regulation of exports and imports of agricultural products, support for scientific and technical progress, social support for farmers, etc. The success of agriculture in the leading countries of Western Europe, the USA, Canada, China and Japan is due to the fact that the self-regulating mechanisms of the market have been limited by external levers. This is government support for agriculture through subsidies, prices, quotas, credit and tax policies, etc. Methodology. The article develops methods of financial risk management, which include identification, analysis and development of methods of neutralisation of financial risks of a company. Value/originality. The proposed model can be used to guide further GDP growth with the help of other factors. It is necessary to take into account other factors contributing to GDP growth. In general, each country chooses the optimal balance between different instruments for regulating agricultural enterprises, depending on the national characteristics of the development of the agricultural sector and the priority objectives of the agri-food policy. Prospects for further research are related to the development of optimal sources of financial support for agrarian entrepreneurship in Ukraine. Thus, summarising all the above, it can be noted that decision-making is one of the main issues in management, and in the current conditions of unpredictable challenges and changes, every manager faces the need to be creative in solving the tasks. That is why it is necessary for the management of hotel and restaurant facilities in this time of challenges and new business conditions to make certain adjustments to the management decision-making process, applying the considered managerial and organisational features. Since efficiency and consistency in making management decisions is one of the indicators of effective management of any organisation.

MANAGEMENT OF FINANCIAL RISKS OF ENTERPRISES AS A PREVENTION COMPONENT OF THEIR FINANCIAL INSTABILITY AND BANKRUPTCY FOR THE SUSTAINABLE DEVELOPMENT ACHIEVING

The development is impossible without ups and downs, as a result the stability is disrupted. It is hypothesized that development cannot occur continuously, and therefore it does not exclude the possibility of unstable states. The enterprise unsustainable development is characterized by its financial failure, which is identified with its bankruptcy. At the same time, bankruptcy and liquidation of enterprises in Ukraine is currently a fairly common phenomenon. The purpose of the article is to systematize the methods of financial risk management of enterprises as an ingredient prevention of their financial instability and bankruptcy for achieving sustainable development. A set of general scientific and special research methods were used to solve the set tasks, in particular: generalization and comparison - to establish similarities and differences between the results of research by other authors regarding their understanding of the essence of the categories "development", "sustainable development" and "risk"; grouping of indicators - to operate with information of the kinds and types of risks existing in the scientific literature and to operate with statistical data of the initiated bankruptcy procedures number of legal entities in Ukraine; mathematical - to develop a model for determining the maximum allowable value of lost cash flow of the enterprise, graphic - to visualize the presentation of information, etc. It is substantiated that the prevention of bankruptcy of enterprises is a tool for the sustainable development ensuring. An economic and legal tool is the plan of sustainable development of the enterprise that helps to solve the problem. Its component should be an economic analysis of the company's financial condition. At the same time, any enterprise carries risks related with its business activities. Scientists mostly recommend to use the minimum cost criterion for measures to reduce risk to its acceptable level as the main criterion for risk management. However, the question arises: what risk is considered to be acceptable? For the determination it is advisable to model the movement of the company's cash flows and to identify the limits that lead to unacceptable results for the company, For example, that can lead to the deterioration of the company's financial condition as well as to its bankruptcy and even liquidation. It is taken into account that the economic activity of the enterprise can take place both under normal operating conditions and burdened by certain extraordinary events. The method of determining the maximum permissible risks for enterprises of two groups is substantiated: for the ones, which violation of the bankruptcy procedure in general is possible; for the ones, which violation of the bankruptcy procedure is unlikely. The events that determine the risks during the export of products are considered.

ФІНАНСОВИЙ РИЗИК-МЕНЕДЖМЕНТ У СФЕРІ ЛОГІСТИКИ

The article examines the issue of using financial risk management methods in the logistics business. It is established that the war-related situation on the territory of Ukraine has indicated a change in the external and internal conditions of operation of logistics enterprises, which in turn has created additional financial risks. The aforementioned problematics necessitated a comprehensive restructuring of the business strategy, in particular: variable market positioning tactics; monitoring the work of all departments and divisions on an ongoing basis; analyzing and accounting of the crisis constraints; determining the optimal and least risky transportation itineraries, considering changes in access to certain warehouse and storage points, financial and currency restrictions, etc. It is stated that the instability of the economic environment and currency fluctuations increase the financial risks of logistics enterprises, necessitate constant accounting of foreign currency, which in turn requires additional risk management measures. The mentioned aspect creates a necessity to search for ways and methods to minimize currency risks and, as a result, to protect a business entity in the sphere of logistics against potential additional losses. In the course of the study, a situational analysis of the logistics sphere of Ukraine has been conducted. The goal and objectives of logistics activities have been defined. The article defines the fundamental principles of minimization of financial risks in the sphere of logistics. The article summarizes the main methods used to calculate currency risk assessment. Given the introduction of certain peculiarities of working with foreign currency, for instance, during martial law in Ukraine, this system of methods becomes an effective way of leveling currency risks. With the intent of avoiding financial risks as much as possible and minimizing losses from risky transactions, it is worth taking into account not only risk assessment and management methods, but also the current peculiarities of working with currency in an uncertain condition.

УПРАВЛЕНИЕ ФИНАНСОВЫМИ РИСКАМИ КОММЕРЧЕСКОГО БАНКА

The article discusses the main ways and methods of financial risk management in a commercial bank. The main goal of financial risk management is to reduce financial losses through the implementation of certain methods, such as hedging, insurance, provisioning, etc. The current problem of financial risk management in the banking sector indicates the absence of an integral system of their management. To overcome critical situations and create an innovative risk management system in banking institutions, it is advisable to develop and implement new and more effective methods of banking risk management.

УПРАВЛІННЯ ФІНАНСОВИМИ РИЗИКАМИ – ФАКТОР СТІЙКОГО РОЗВИТКУ ПІДПРИЄМСТВА РЕАЛЬНОГО СЕКТОРУ ЕКОНОМІКИ

Risk is a complex, multidimensional category with different approaches to its definition by Russian and foreign scientists. A special group in the total amount of risks is financial risks. The increase in the degree of influence of financial risks on the activities of enterprises has necessitated a comprehensive study of the identification and nature of the nature of financial risks. The management of financial risks helps to minimize the negative impact of financial risks at the enterprise. In this regard, the article was considered in detail the process of financial risk management, was characterized by various methods of assessment and analysis of their management, were considered methods of financial risk management and identified their features.A particular group in the overall risk range is financial risks. The increase in the degree of influence of financial risks on the activities of enterprises necessitates the need for a comprehensive study of the identification and nature of financial risks. We have been shown the possibility of assigning risks to financial, in the presence of the following basic characteristics: the presence of the possibility of underreporting, the possibility of bankruptcy and activity in the financial market. In this case, the entire set of major financial risks for the manufacturing industry was divided into external and internal financial risks by the principle of management. To help minimize the negative effects of financial risks on an enterprise, it helps to manage them. In this connection, the process of financial risk management was considered in detail, various methods of evaluation and analysis of their management were described, methods of financial risk management were considered and some of them were identified.

The risk-management theory in modern economic conditions

The article reveals features of risk-management theory in environmental enterprise. Risk management is considered according to the system approach. The interaction of the managed and managing subsystems and their cooperation with the external environment are being studied and analyzed. The object of management is a risky investment in the implementation of economic relations between economic entities. The subject of management is a team of specialists. They provide purposeful action on the controlled objects through various techniques and methods of financial risk management.

THEORETICAL ORDERING OF THE METHODS AND TOOLS OF FINANCIAL RISK MANAGEMENT OF INSURANCE COMPANIES

Essence of methods and tools of financial risk management of insurance companies are defined. It has been founf out that the methods of financial risk management of the insurer can be called a system of techniques in the field of financial risk management. Its use allows to solve a number of tasks to a certain extent. For example, it can allow to foresee the occurrence of risk events in the process activities of insurance companies and identify different ways of their avoidance, minimization, and transfer, and to take measures to reduce the consequences of occurrence of such events to the insurer. It has been defined that the tools of financial risk management of the insurance company are the totality of means. With their help we can make the analysis, control and funding of possible financial risks of the insurer that can arise in the process of implementation of economic activity. The methods and tools of financial risk management are closely connected. The main methods of financial risk management of the insurance company are analyzed. The most common methods of risk management in insurance are risk assessment, risk avoidance, risk reduction, risk acceptance, risk transfer. The instruments of financial risk management of the insurer, in particular, stress testing, early warning tests, Monte-Carlo, VaR-methodology, methods, which are based on calculation of indicators of ES, EVA and RAROC, as well as hedging, diversification, valuation, self-insurance, co-insurance and reinsurance are defined. The necessity to use the methods and tools of financial risk management by insurance companies is defined. It has ben provrd that the insurance company should choose the most appropriate methods and tools for risk management. The company should also take into account all the peculiarities of its activities and will assist in the evaluation and control of existing and prevention of possible risks.

FINANCIAL RISK MANAGEMENT- A COMPARATIVE STUDY BETWEEN IRANIAN BANKS

Undoubtedly financial risk management due to its high impact on stockholders wealth is always considering by Banks. Risk management methods and its accomplishment leads to shareholder consent or dissatisfaction. Present research, examine this issue by three instruments of Financial risk management includes interest rate risk, capital risk and risk of natural hedging. Thus, the main problem in this content is to some extent financial risk management methods can effect on stockholders’ wealth. We separate banks into private sector and public sector and examine hypothesis for each group by regression models. Return on Equity (ROE) changes is a reliable criterion for shareholders wealth. Results show that public banks are more successful in using risk management tools in compared with private banks. In other word, we have found more meaningful relationship between financial risk management tools and shareholder wealth in public banks.

CLASSIFICATION OF FINANCIAL RISKS AND MANAGEMENT TECHNIQUES IN THE ORGANIZATION OF PRODUCTION PROCESSES

Financial risks significantly affect the activities and organization of production processes of the economic entity. Risks posed by financial performance and adversely affect the company as a whole, the selection in an autonomous group of financial risks shows the importance of a general «risk portfolio» of the enterprise. The result of the uncertainty of financial risk is unpredictable financial result and income from financial operations. Consequently, the financial risks can be associated with significant financial cost to the enterprise, and additional income. The results of experimental studies in the management of financial risks. We investigated different classifications and types of financial risks. Based on the analysis refined author’s clas sification of financial risks, given the characteristics common types of financial risks, systematized methods of financial risk management.

The Sense and Support of a Mechanism of Industrial Enterprise Financial Risk Management

The author has analyzed the sense and support of a mechanism of industrial enterprise financial risk management, taking into account a dynamically changeable economic environment. The article contains the main approaches to methodical support of financial risk assessment on the basis of quantitative methods. The author has determined that formation of the mechanism of industrial enterprise financial risk management is complicated by a very considerable amount of different forms of risks emerging in the process of daily activities of enterprises and a considerable amount of forms of financial risks. Moreover, it is worth taking into consideration that there are a significant amount of methods and ways of the assessment of risks, types of organizing functioning of the economic and financial mechanism for risk management at enterprises, and ways of prevention, counteraction, and minimization of risks. Furthermore, financial risk management is complicated by necessity of choice of the most appropriate instruments for assessment of their level and the choice of methods of financial risk management. Under contemporary conditions of a lack of financial resources, issues of computation of precise amounts of industrial enterprise protection from financial risks and prior directions of formation of the financial risk management single mechanism assume great importance. The choice of an appropriate economic and mathematical policy of formation of the financial risk management single mechanism enables to considerably decrease financial risks without great additional expenses. Hence, the article has substantiated a severe need for development of methods of implementation of the financial and economic mechanism at industrial enterprises under conditions of existence of financial risks in the context of providing effective management. Particularly, some aspects of the financial risk theory are insufficiently examined nowadays; a system of industrial enterprise risk classification is not precisely substantiated; there are significant weaknesses of the quantitative assessment of enterprise financial risks. There is a need to focus on the necessity of mathematical substantiation of the main directions of application and an extent of usage of some instruments of the financial risk management single mechanism. In general, financial risk management for industrial enterprises contains a considerable number of insufficiently researched aspects. Under conditions of the contemporary unstable economic situation, industrial enterprises must use a low-cost and highly efficient system of financial risk management. The above-mentioned reasons have stipulated the preparation of this article. In addition, this article proposes methodical recommendations regarding decrease of financial risk levels, formation of an industrial enterprise management system with the account of economic risks, directions and mechanisms of industrial enterprise riskmanagement integration.

The usefulness of inaccurate models: financial risk management 'in the wild'

Is the growth of modern financial risk management a result of the accuracy and reliability of risk models? In this paper we argue that the remarkable success of today's financial risk management methods should be attributed primarily to their communicative and organizational usefulness and less to the accuracy of the results they produce. In this paper we trace the intertwined historical paths of financial risk management and financial derivatives markets. Spanning from the late 1960s to the early 1990s, we analyze the social, political and organizational factors that underpinned the exponential success of one of today's leading risk management methodologies, the applications based on the Black-Scholes-Merton options pricing model. Using primary documents and interviews, the paper shows how financial risk management became part of central market practices and gained a reputation among the different organizational market participants (trading firms, the options clearing house and the securities regulator). Ultimately, the events in the aftermath of the market crash of October 1987 showed that the practical usefulness of financial risk management methods overshadowed the fact that when financial risk management was critically needed the risk model was inaccurate.

The usefulness of inaccurate models: Towards an understanding of the emergence of financial risk management

Is the growth of modern financial risk management a result of the accuracy and reliability of risk models? This paper argues that the remarkable success of today’s financial risk management methods should be attributed primarily to their communicative and organizational usefulness and less to the accuracy of the results they produced. This paper traces the intertwined historical paths of financial risk management and financial derivatives markets. Spanning from the late 1960s to the early 1990s, the paper analyses the social, political and organizational factors that underpinned the exponential success of one of today’s leading risk management methodologies, the applications based on the Black–Scholes–Merton options pricing model. Using primary documents and interviews, the paper shows how financial risk management became part of central market practices and gained reputation among the different organisational market participants (trading firms, the options clearinghouse and the securities regulator). Ultimately, the events in the aftermath of the market crash of October 1987 showed that the practical usefulness of financial risk management methods overshadowed the fact that when financial risk management was critically needed the risk model was inaccurate.

The Usefulness of Inaccurate Models: The Emergence of Financial Risk Management

Is the growth of modern financial risk management a result of the accuracy and reliability of risk models? This paper argues that the remarkable success of today's financial risk management methods should be attributed primarily to their communicative and organizational usefulness and less to the accuracy of the results they produced. This paper traces the intertwined historical paths of financial risk management and financial derivatives markets. Spanning from the late 1960s to the early 1990s, the paper analyses the social, political and organizational factors that underpinned the exponential success of one of today's leading risk management methodologies, the applications based on the Black-Scholes-Merton options pricing model. Using primary documents and interviews, the paper shows how financial risk management became part of central market practices and gained reputation among the different organisational market participants (trading firms, the options clearinghouse and the securities regulator). Ultimately, the events in the aftermath of the market crash of October 1987 showed that the practical usefulness of financial risk management methods overshadowed the fact that when financial risk management was critically needed the risk model was inaccurate.

Managing electricity market price risk

This paper introduces an application of financial risk management methods to the deregulated electricity markets. A framework for the Monte Carlo performance simulation of a power portfolio is presented. The optimal portfolio selection problem is addressed and a numerical method is implemented. Numerical results of simulation and optimization are presented in the Nordic electricity market. The results suggest that the risk management methods of the paper can be applied to the everyday electricity market practice.