Risky Instruments Research Articles

Competition for ‘Top 25 Companies’ Award’s Criterion of PSX: An Evaluation of the Financial Aspects

A company's performance is a complex phenomenon because of a variety of aspects to quantify it, however, a competitive criterion has been established by Pakistan Stock Exchange (PSX) in terms of "Top 25 Companies". Those firms qualifying this criterion over the last two decades need to be compared with those who have yet to achieve it. The main objective of the study is to evaluate the financial stability and extra-ordinary performance based on PSX quantitative criteria of those firms maintaining top 25 position over last 24 years. The financial aspects of 18 firms out of more than40 has been selected by taking last 24 years' data. These firms are classified into two different samples, the sample from companies successfully qualify the criterion for "Top 25 Companies" award, while the second sample consist of other renowned ones that yet to qualify for this criterion. The performance evaluation of both types of firms has been done through financial statements available on the website of PSX through their annual reports to calculate the ratios. In addition to these financial ratios other relevant indicators considered for evaluation purposes are, equity premium as a difference in returns between stocks and less risky instruments (bonds), firm size measured through sales, and market performance measured through total assets. The impact of these ratios on the stock returns has also been evaluated through regression analyses which allowed to identify those specific advantages the ‘top-25 qualifier’ firms may have over the ‘other non- qualifier’ firms. The findings suggest that ‘top 25 qualifier’ firms mainly beat the ‘others non- qualifier’ based on equity-related measures including dividend payout ratios, market premium and the equity premium. Therefore ‘other non-qualifier’ should improve equity-related context to successfully qualify for this criterion in future.

Comparison of Markowitz Model and Index Model in Capital Markets

We are searching for an optimal portfolio that plays a significant role in portfolio management by maximizing the expected return subject to a constant risk or minimizing the risk for a constant expected return. In this work, we first calculate the basic statistical information of our risky instruments, the probability density functions, and the Q-Q plot to compare the daily and monthly data for ten stocks and one broad equity index. We conclude that the monthly returns data is much closer to a normal distribution. Second, when calculating the correlation coefficients, we find that the stocks of the same industry are often highly correlated. Third, through the plotting of the feasible portfolio regions using the Markowitz Model (MM) and the Index Model (IM) consisting of various portfolios under different constraints, calculating two essential points on the efficient frontier, and analyzing the CAL, we generalize that the contrast between the MM model and IM model have similar results whether there is weighted SPX. Compared with the IM model, the MM minimal variance portfolio and maximum Sharpe Ratio the olio the MM model is more desirable than the IM model. The introduction of the generic index SPX affects the results of both models to a certain extent. Finally, we use the Monte Carlo method to simulate that the generated points are all within the feasible region, which indicates that the sample results are reasonable. Our research not only further supplementary the empirical research of the MM model and IM model, but we provide investors with some investment suggestions for constructing portfolios.

Мінімізація ризиків як складова забезпечення фінансової стійкості банківського сектору України

Abstract. Introduction. Banking activity, like any other, is accompanied by the presence of risks caused by the specifics of the relevant operations. Taking into account the effect of economic factors, the instability of the political situation, and crisis phenomena, it is important to stabilize the financial stability of the banking sector of Ukraine and further improve the mechanism for ensuring the financial stability of the banking system. Starting from 2022, the economic security of the banking system was significantly disturbed as a result of the pandemic and the introduction of quarantine measures, which in turn increases the level of banking risks. Thus, part of the borrowers of banking institutions is characterized by the inability to meet their obligations. Therefore, the state government and the National Bank of Ukraine implemented measures aimed at minimizing banking risks. Purpose. The purpose of the article is to study the modern risks of banking activity as a component of the mechanism for ensuring the financial stability of the banking sector of Ukraine, as well as to determine directions for their minimization. Results. As a result of the implementation of the risks of banking activity during the martial law, banking institutions suffered quite significant losses, especially due to the deterioration of the quality of the loan portfolio. The least risky instrument on the Ukrainian stock market is government bonds, as the risks of default in the national currency of the government are much lower than those of other issuers. Thus, the credit risks of bonds of domestic government loans are almost absent. Basel standards and European banking legislation allow setting zero capital requirements for credit risks of securities in the national currency. __________________________________________________________________________________________________________________________ __________________________________________________________________________________________________________________________________ 84 Conclusions. For the further effective functioning of the banking sector and the minimization of risks, it is important to: comply with the requirements of the NBU by banking institutions; strengthening of financial controlling; timely informing the NBU about violations of capital and liquidity, as well as about possible risks of such violations; improvement of the cyber protection system.

PORTFOLIO DIVERSIFICATION WITH BITCOIN. EVIDENCE FROM INSTITUTIONAL INVESTORS PERSPECTIVE

The paper investigates the empirical verification of the efficacy of investment diversification using the main stock exchange indices in the Eurozone countries and Bitcoin. The paper also investigates whether and to what extent it is desirable for institutional investors, in addition to traditional financial instruments, to invest in Bitcoin. The aim of the research is to examine whether it is justified and to what extent to include Bitcoin in the portfolio of an institutional investor. Through this research, an attempt is made to find an answer to the research question: “What share of Bitcoin in the portfolio structure is justified, taking into account the ratio of return and risk”? The analysis includes data on the daily movement of selected action indices as well as the movement of Bitcoin. The methodology involves the analysis of high-frequency data, given that daily trading data were used. The results show that it is justified to include Bitcoin in the portfolio structure. Also, the results show which share of Bitcoin in the portfolio is justified from the aspect of institutional investors. The data used in the analysis cover the period from 2019 and 2020. Two portfolios have been created, one without Bitcoin and the other with Bitcoin. The goal in optimization for both portfolios is to minimize risk. The observed period of the analysis is characterized by the crisis caused by the coronary virus pandemic and the period of active bitcoin trading. The results of the research show that Bitcoin is a good source of diversification in a portfolio that contains traditional financial instruments, both for an investor who is not prone to risk, and for those investors who have a greater appetite for risk. The conclusion is that the rational behavior of institutional investors requires consideration of investing in Bitcoin using the Markowitz model. However, given the high degree of volatility, investors should be careful when making decisions about including Bitcoin in their investment portfolio. Bitcoin is an extremely volatile instrument. Given that it is a speculative and highly volatile financial instrument, investors have different views on Bitcoin. First in terms of defining this cryptocurrency and then in terms of including this instrument in the investment portfolio. By including Bitcoin in the investment portfolio, the goal of diversification has been achieved. This is to reduce the risk of the institutional investor to a minimum. In practice, this means that it is possible to create a portfolio that carries an acceptable level of risk with the desired level of return. Given that Bitcoin is an extremely volatile and consequently - risky instrument, the expected return is also - high. The results of the research show that the cryptocurrency Bitcoin can serve as a desirable instrument for diversification of the investment portfolio when looking at a portfolio that includes stock indices. The results suggest that it is desirable to include in the structure of the portfolio a certain share of Bitcoin, about 6%.

Фінансовий моніторинг на ринку цінних паперів України

The purpose of the article is to study the current status of financial monitoring carried out in the securities market of Ukraine. The article analyzes the activities of the entities of the State-based financial monitoring and primary financial monitoring in the stock market of Ukraine. Their main functions and tasks in the financial monitoring system are distinguished. Based on the carried out research, it is concluded that securities are often used in illegal schemes (withdrawal of assets outside Ukraine, minimization of tax liabilities, tax evasion, etc.) that precede the laundering of criminal income. One of the risky instruments of the financial market was also the purchase and sale of domestic government bonds. On the one hand, this type of securities can be considered one of the most reliable financial instruments due to its high liquidity and wide range of applications. At the same time, the high demand and peculiarities of execution of contracts concluded on the stock exchange for the purchase/sale of domestic government bonds make them attractive in schemes of legalization of illegal income, especially for public figures who must declare their wealth. Considering the nature of reports of violations of securities transactions, it can be concluded that there is a high proportion of possible schemes for legalizing dirty funds. Under martial law, there have been significant changes in the process of identification and verification of clients of the primary financial monitoring entities in order to simplify the purchase of government securities. Thus it is worth noting that the largest share of violations of financial legislation falls on government bonds, which have become available to various categories of investors (including individuals). This fact may contribute to the emergence of new schemes for laundering (legalization) of proceeds from crime. Therefore, the entities of the State-based financial monitoring should develop a system of hedging risks regarding the placement of government bonds among different categories of investors. This is especially true of the over-the-counter market. It is worth noting that this segment of the stock market is under the partial control of the national depository of the NBU. Therefore, it is proposed to create an entity in the securities market that would adopt the functions of controlling and preventing fraudulent and manipulative actions with securities.

Private pension funds: pragmatics and problems of activity in Ukraine

Introduction. Nowadays, the pension system in Ukraine is being transformed, which necessitates analytical research on the activities of private pension funds, namely, open-ended, identifying problems of their activities and finding ways for further effective development.Methods. In the article author uses methods of analysis and synthesis, graphic research methods, economic and statistical methods for information collection and processing, in particular, sample surveys, groupings, statistical comparisons, trend analysis - in the process of evaluating the activities of private pension funds in Ukraine, and the method of logical generalization in formulating conclusions.Results. Author did an analytical assessment of indicators that characterize both the quantitative side of the activities of private pension funds in Ukraine and the qualitative side of their effectiveness in the domestic financial market. Attention is focused on the peculiarities of the structure of the portfolio of open non-state pension funds and it is concluded that the biggest quote (about 95%) in it belongs to cash on bank deposits and government securities. Author analyzed the indicators of profitability of the five most profitable open pension funds of Ukraine (according to the results of 2020) and their comparative characteristics, both in terms of the level of profitability and with the inflation rate. The tendency to decrease the profitability of investment portfolios during the analyzed period is noted. It was found that the structure of the portfolio of the most profitable open private pension funds is practically the same as the general structure of all pension funds of Ukraine. Discussion. Author proposed to form the portfolio structure of a private pension fund based on the characteristics of its depositors, and for the part of the portfolio with the largest investment horizon include risky instruments: direct investment funds, venture funds and real estate funds. This will allow using part of the pension savings as a long-term investment resource for the modernization of the domestic economy.Prospects for further research necessitate consideration of the main methods used in the process of selecting an asset management company, the administrator of a private pension fund, and assess the effectiveness of its asset management of private pension funds.

Цільові облігації: ризики та доцільність застосування

The conditions for attracting and the availability of capital to finance construction are important for the economic development of Ukraine. The article considers how the institutional environment and variability of legislation, in particular, in the investment and fiscal spheres cause developers and participants in capital markets to constantly search for the most optimal in terms of taxation and least risky instruments for financing construction, one of which is corporate target bonds. To assess the risks of using target bonds in construction financing, the evolution of the legal form of issuance, circulation and redemption of target corporate bonds in Ukraine was considered, which was too late to avoid large-scale defaults and too fragmented to properly protect investors’ rights. The rudimentary nature of target real estate bonds in Ukraine, their inconsistency with the EU experience in terms of regulation and practice of capital and real estate markets. The functionality of the existing publicly available databases on the stock market of Ukraine for aggregation and analysis of information on different types of financial instruments, including target corporate bonds were confirmed. Investment and fiscal risks of using target corporate bonds for real estate financing are studied. It is proved that the scheme of financing construction through the issuance of target corporate bonds has significant risks for investors and developers. The contradictory nature of the implementation of EU legal norms on the classification of financial instruments and the lack of adequate mechanisms to protect investors in target corporate bonds are substantiated. To deepen the analytical justification of the results in further research, it is advisable to pay special attention to a comprehensive study of the advantages and disadvantages of existing and future models of construction financing in regularly updated legislation, in particular in the field of taxation and capital markets regulation.

Mudharabah based crowdfunding as an alternative source of funding book publications in Malaysia

PurposeThis paper aims to explore the applicability of mudharabah (partnership) based crowdfunding as an alternative fund to support the book publishing industry, particularly for self-publishers and small publishers.Design/methodology/approachThis is an exploratory qualitative study whereby the data are obtained from library research and empirical studies. As for empirical data, it is sourced from semi-structured interviews with three types of groups: the book industry, the crowdfunding platform and Shari’ah experts.FindingsThe study found that mudharabah crowdfunding could overcome the book publishing industry’s financial problems. However, this requires special requirements for applicants (writers or publishers) to avoid fraudulent cases, as well as committed management in running the platform and a substantial crowd of loyal funders to maintain the platform. Simultaneously, even though mudharabah is a risky instrument, the risk can be mitigated by closely monitoring the progress of the project. As a result, this study proposes a special framework for mudharabah based crowdfunding to fund self-publishers and small publishers in Malaysia.Research limitations/implicationsThis is an exploratory study, in which its findings may not be generalised due to the limited number of participants.Practical implicationsA special model for mudharabah based crowdfunding can be established through an online platform to support book publishing in Malaysia.Social implicationsAs this mudharabah crowdfunding model has the potential to support the book industry financially, it could also nurture talented young writers while also preserving knowledge.Originality/valueThis study highlights a fresh and in-depth discussion both in theory and practice in proposing a special Islamic crowdfunding framework based on mudharabah as an alternative fund for the book industry, particularly to support self- and small publishers.

ПРАКТИКА ТА ПРОБЛЕМАТИКА ВИКОРИСТАННЯ В УКРАЇНІ РИЗИКОВИХ ТА БЕЗРИЗИКОВИХ ІНСТРУМЕНТІВ ЗАОЩАДЖЕНЬ ДОМОГОСПОДАРСТВ

The aim of the article is to classify and characterize financial instruments of household savings and analyse the practice of their use in Ukraine in 2010–2020, identify the advantages and disadvantages of using risky and risk-free financial instruments of household savings. The financial instruments of household savings are a bank deposit, securities (stocks, bonds), investment fund shares and trust management of personal funds. Financial instruments for making savings are classified into risky and non-risky. Under risky were considered instruments for which the yield is not determined in the future. The classification of financial instruments into risky and risk-free allows us to identify the advantages and disadvantages of each of them, to explore the practice and issues of their use in Ukraine. In writing the work used analysis and synthesis as methods of theoretical knowledge of phenomena and comparison as an empirical method for research. For conducting research and substantiation of relevant conclusions, the indicators of the average annual yield on deposits in banking institutions, the average annual yield on ordinary shares of Ukrainian enterprises, and the annual rate of change in prices for goods and services (inflation) for the period 2010–2020. The study was performed on the materials of the State Statistics Service of Ukraine, the National Bank of Ukraine, and the Ukrainian Stock Exchange. In particular, the practice of using a bank deposit as the most common risk-free financial instrument among households and ordinary shares as one of the most accessible risky financial instruments for households was studied. It was studied that risk-free assets (on the example of term bank deposits) are a more reliable financial instrument of household savings but less profitable than risky instruments (on the example of Ukrainian stocks). Quantitative measurement of the ratio of risky and risk-free financial instruments in the structure of the household budget will deepen existing approaches to understanding the process of personal income and expenditure management and opens prospects for further research in this area of financial science.

FISCAL SPACE DIVERGENCE OF UKRAINE: DEBT FATIGUE RISKS

Restrictions on the use of fiscal instruments due to high level of public debt have affected the fiscal spaces of many countries. The issue of forming a sufficient fiscal space in Ukraine is extremely relevant in the context of global financial uncertainty, unavailability of new borrowings and acceleration of the COVID-19 pandemic.The study summarizes existing narratives and theoretical and methodological approaches to an important economic category of a fiscal space. The fiscal space is analyzed as the difference between the current level of country`s public debt and its debt limit.The aim of the study is focused on empirical assessing the fiscal space, studying the dynamics of Ukraine’s public debt, its ratio to GDP, and an empirical analysis of the relationship between growing public debt and economic growth, primary budget balance in Ukraine during 1995-2019, calculating the fiscal reaction function, as well as identifying possible risks of fiscal fatigue based on analysis fiscal response function.The authors confirmed a negative correlation between public debt and economic growth for Ukraine based on regression analysis of the data set in 1995—2019. It is revealed that the basic obstacle to the creation of sufficient fiscal space in Ukraine is unacceptably high rates of servicing sovereign debts against the background of insignificant or negative GDP growth rates.The debt fatigue risks were emphasised. Fiscal fatigue or depletion was assessed as a specific stage of insensitivity of public finances to the growth of public debt. It is proposed to restrain further unjustified increasing of public debt, to abandon the use of risky instruments to avoid fiscal fatigue. Fiscal rules aimed at fiscal sustainability and efforts to expanding the fiscal space can be considered as an acceptable fiscal policy.

A Non-Random Walk Down Hollywood Boulevard: Celebrity Deaths and Investor Sentiment

Media communication scholars document that the general public exhibits a psychological attachment to celebrities and may emotionally react to their death. In this paper, I take advantage of this insight and I adopt an event study approach to test the impact of exogenous and incidental negative affect (i.e. grief, proxied by the death of Hollywood Walk of Fame celebrities) on people’s willingness to invest in risky assets (proxied by the daily performance of the U.S. stock market). Using a sample of 1,374 celebrity deaths over the period 1926-2009 and controlling for seasonalities, economic/environmental factors, and market liquidity, I find that the death of popular and beloved celebrities is immediately followed by a 16 basis point increase in stock returns, which is consistent with a rise in the net demand for risky instruments. I also find evidence that the size of this celebrity-death effect is increasing in the popularity/media coverage of the celebrity in question, and is larger for stocks that are more affected by investor sentiment. Overall, my findings are consistent with the lab research on the affect management model, which maintains that incidental negative affect promotes risk-prone behavior.

Financial officers, the municipal swap industry and the rise of risky innovations among states

Abstract At the turn of the millennium, US states started to employ debt-related derivatives. Surprisingly, the prevalence of these instruments among states peaked soon after the first corporate scandals involving such complex financial tools. Why did states embrace swaps? I build on political and sociological arguments and posit that both the industry’s and the state’s interests must be considered. The swaps industry started marketing swaps to treasurers as part of their fee-based business model and in response to declining profits, while governments welcomed swaps as they fit the treasurers’ professional agenda. I test this argument with original data on the initial swaps adoption by US states between 1989 and 2014. The event history analysis lends support for the theory. The findings complement explanations for the rise of risky instruments among states and contribute to the literature on financialization.

AN EMPIRICAL STUDY OF MUTUAL FUND AWARENESS AMONG THE PEOPLE OF AHMEDABAD

Mutual fund industry in India is rising and investment in a mutual fund is less risky than financing in other risky instruments is therefore a safer option for risk aggressive investors. Mutual Funds offer a stage for an investor to contribute to the Indian capital market with specialized fund management regardless of the amount invested. This paper attempts to study the outlook of citizens towards awareness with special reference to mutual funds. The population of the study is selected from the Ahmedabad city of Gujarat state of the country. The sample size is 100 and the researcher has used a convenient sampling method for the study. The findings of this study are that people are aware of mutual funds but still, people are not investing in mutual funds. It is expected that this study will help in India to plan successful strategies for increasing investment in mutual funds and they can spread more awareness about mutual funds.

Levels 2 and 3 Instruments and Stock Price Crash Risk: Evidence From European Banks

Financial instruments in levels 2 and 3 for accounting purposes are complex and opaque products and their evaluation is problematic. The amount of these assets held by banks in Europe is exceptionally high (€3 trillion in 2019) and there is no empirical evidence as to the extent, if at all, to which investors perceive them as risky instruments. Focusing on stock price crash risk, we provide evidence of a significant difference in the relationship between these instruments and risk depending on whether they are classified as levels 2 or 3. Specifically, level 3 assets and liabilities appear positively linked to bank risk, while there is no similar evidence for level 2 instruments. Our results are robust to various risk measures, including value-at-risk and expected shortfall. A key implication that emerges from this study is that stability requires more defined boundaries between level 2 and level 3 financial instruments and a reduction of the opportunities for managerial discretion.

О СОВЕРШЕНСТВОВАНИИ ПОНЯТИЙНОГО АППАРАТА ДЕРИВАТИВОВ В АСПЕКТЕ БУХГАЛТЕРСКОГО УЧЕТА

The importance of financial information for a company is an important element of its integrity, financial autonomy, as well as recognition of its entrepreneurial freedom and sovereignty of economic decisions made. Taking into account the importance of the financial report, the international business community has identified principles for the preparation and presentation of this information, which are mandatory for all participants in the financial activities of the company: relevance, reliability, comprehensibility, materiality, truthful presentation, completeness, transparency. However, due to the increasing role of risk and uncertainty at the present time, business participants are forced to resort to new ways of doing entrepreneurial activity, performing managerial corporate operations, which, on the one hand, should be financially legitimate, and on the other hand, be a management cunning and ingenuity with a positive financial result. That is why interest in derivative financial instruments has increased. There is a contradiction, namely: in the conditions of economic instability, enterprises and participants in economic activity, in order to minimize financial risks, use derivative financial instruments to hedge the assets of the organization, thus acquiring the most risky asset. After all, derivative financial instruments are themselves recognized as the most risky instruments. However, existing accounting practices in the area of ​​derivatives do not meet the growing needs of the business for corporate control and management and financial accounting. Leading a discussion about the accounting of derivatives is not new. Many authors are engaged in developments in accounting for derivatives, such as: Zhitlukhina O.G., Astakhova Yu.A., Tarasova Yu.A., and others. But despite this, and also due to the observed growth in enterprise risk management and the increasing interest in derivatives by company management, this article discusses an important controversial aspect of the recognition of derivatives as financial accounting entities. The work is devoted to improving the definition of derivatives in the aspect of accounting, recognition of their transactions. An analysis of existing developments was also carried out and on the basis of this, the author’s definition was proposed.

Optimal portfolio using volatility anomaly concept and Sharpe optimization technique

Risk aversion is the basic nature of any investor so avoidance of any risky instruments in their investment portfolios becomes inevitable. Equity, the riskiest instrument is normally not preferred by the risk-averse investors. An optimal portfolio with low volatile stocks with a better return than a portfolio with more risky stocks can bring a solution to risk-averse investors. The paper attempts to derive an optimal portfolio using Sharpe's optimisation process with a sample of 30 stocks listed in the BSE low volatility index developed on the theme of volatility anomaly. The paper finds seven such stocks which can be considered for creating a low-risk portfolio out of the 28 stocks with the higher excess return to beta ratio and also derives the allocation of investment. Results suggest that even with lower risk the portfolio could outperform the riskier benchmarking index.

Returns and risk on Bitcoin: a volatility measurement by unit root test

Purpose - The major reason of performing this study is to examine volatility of the Bitcoin prices. As known, Bitcoin became more popular when its price movements changed radically. It has been increasing for years since the date of first issuance in 2010 and reached highest level in its history by testing 19,345 USD. Based on this price movement, risk and returns are taken together for making investment in Bitcoin since huge decreasing observed in respond to the these increases. Methodology - In this study, Bitcoin prices are analyzed monthly basis through the time series analysis. Data related to closing prices of Bitcoin are obtained from investing.com web site. We established analysis based on sample consist of Bitcoin prices for the period between 2016 and 2019. Augmented Dickey Fuller (ADF) and Phillips Perron (PP) unit root test is applied to find out whether series are stationary or not. Findings- According to test results, the series of Bitcoin prices are not stationary yet. Although different fluctuating degree can be seen by years, generally it can be stated that Bitcoin prices are still volatile. Conclusion- Based on findings, Bitcoin prices may still be considered as volatile instrument. Therefore, investors should be careful when they want to include this investment tool to the portfolio since it represents risky instrument properties.

Szanse i zagrożenia inwestycji na wybranych segmentach rynku finansowego

Inwestycje finansowe są ważnym elementem finansów gospodarstw domowych. Dają szansę na zapewnienie im dobrobytu finansowego i poczucia bezpieczeństwa. Niosą jednak za sobą pewne zagrożenia. Inwestowanie to proces, podczas którego inwestor konstruuje portfel aktywów finansowych, odzwierciedlający określone cele inwestycyjne, np. maksymalizację zysku i/lub minimalizację ryzyka. Założeniem inwestycji jest zysk. Jednak nie zawsze inwestorom udaje się odnieść pożądany wynik często przez źle podejmowane decyzje inwestycyjne. Każdy z inwestorów ma świadomość, że im większa oczekiwana stopa zwrotu tym wyższe akceptowalne ryzyko inwestycyjne. Celem artykułu jest pokazanie rentowności wybranych form inwestycji w instrumenty ryzykowne oraz przeprowadzenie analizy dochodowości inwestycji w te walory z uwzględnieniem poziomu ryzyka na wybranych segmentach rynku finansowego – kapitałowym, metali szlachetnych i na rynku forex.

Pomoc finansowa dla krajów strefy euro podjęta w reakcji na kryzys zadłużenia

Kryzys, który rozpoczął się w 2007 roku w Stanach Zjednoczonych, sprawił, że część krajów strefy euro popadła w tarapaty. Niskie stopy procentowe oraz tani kredyt przyczyniły się do powstania „bańki spekulacyjnej” na rynku nieruchomości. Wiele międzynarodowych instytucji finansowych było silnie zaangażowany w rynek pożyczek oraz instrumentów pochodnych powiązanych z rynkiem nieruchomości, dlatego też w momencie załamania się tego rynku wiele z tych instytucji straciło stabilność finansową, a część z nich upadła. Inwestorzy zaczęli wycofywać swój kapitał z ryzykownych instrumentów i niektórych obligacji, inwestując w bezpieczniejsze aktywa. Spowodowało to kryzys płynności na międzynarodowym rynku finansowym, co miało wpływ na sytuację finansową części krajów europejskich. Dobrym przykładem jest Grecja, której budżet był oparty w dużej mierze o tanie pożyczki, dlatego w momencie wystąpienia kryzysu kraj ten stanął przed widmem bankructwa. W innych krajach, jak Irlandia czy Hiszpania, kryzys na ich własnych rynkach nieruchomości spowodował potrzebę ratowania instytucji finansowych, co silnie wpłynęło na wystąpienie problemów budżetowych. W następstwie tych wydarzeń Unia Europejska stworzyła kilka instrumentów finansowych, których zadaniem była pomoc zagrożonym krajom. W pomoc zaangażowany był także Międzynarodowy Fundusz Walutowy. Jednak nie we wszystkich przypadkach pomoc została właściwie wykorzystana. Sytuacja Irlandii znacząco się poprawiła, jednak Grecja wciąż boryka się z problemami budżetowymi. W tym przypadku być może lepszym rozwiązaniem byłoby pozwolenie na bankructwo Grecji oraz powrót do drachmy, aby uniknąć, jak się wydaje, niekończących się strat oraz, w dłuższej perspektywie, zmniejszyć niepewność panującą na rynkach.

Large-Scale Empirical Tests of the Markov Tree Model

The Markov Tree model is a discrete-time option pricing model that accounts for short-term memory of the underlying asset. In this work, we compare the empirical performance of the Markov Tree model against that of the Black-Scholes model and Heston’s stochastic volatility model. Leveraging a total of five years of individual equity and index option data, and using three new methods for fitting the Markov Tree model, we find that the Markov Tree model makes smaller out-of-sample hedging errors than competing models. This comparison includes versions of Markov Tree and Black-Scholes models in which volatilities are strike- and maturity-dependent. Visualizing the errors over time, we find that the Markov Tree model yields more accurate and less risky single instrument hedges than Heston’s stochastic volatility model. A statistical resampling method indicates that the Markov Tree model’s superior hedging performance is due to its robustness with respect to noise in option data.