Narrow Results

This study analyzes, prices and validates global macro strategies in the real estate investment trust (REIT) industry. For REITs, global macro strategies lead to a risk-alpha conundrum, which is rare in this industry. That is, global macro strategies are different in the REIT industry and therefore, global macro within the REIT industry needs a unique and different understanding.

The objective of this paper is to theoretically and empirically identify the effects of hedging and systematic fluctuation on banking stability in China. First, theoretical propositions indicate that the impact of credit derivative hedging and systematic fluctuation on banking stability in China is derived on the basis of a newly established theoretical model. Then, empirical research based on one-stage and two-stage GMM methods suggests that ascending hedging degrees leads to a linearly improving condition for banking stability with respect to overnight lending swap hedging, an improving-then-worsening condition for compensation swaps and an improving–worsening–improving condition for deposit swap hedging; at the same time, the ascending level of systematic fluctuation associated with hedging improves banking stability. Moreover, the trade-off between loan expansion and the stability maintenance of banking sectors can be managed by hedging compensation swaps and overnight lending swaps. In general, the empirical results support the applicability of the theoretical model, and the hedging of certain swaps can be used as a tool for stability maintenance purposes.

Core business and financial market risks are not easily reduced by standard operating procedures in insurance companies. Derivatives theoretically provide a cost effective vehicle to hedge these risks. This paper provides an empirical analysis of the determinants of derivative usage as well as the extent of derivative usage in the Australian insurance industry in both life and general insurance companies for the period 1997–1999.

Empirical results for the Australian life insurance industry in general confirm the findings of UK and US based research. However, the Australian general insurance industry does not appear to follow the conclusions of previous literature. Our results indicate that for life insurers, the determinants of derivative usage were size, leverage and reinsurance. For the general insurance industry the determinants were size and the extent of long tail lines of business written. As regards the determinants of the extent of derivative usage, these were size and asset-liability duration mismatches for life insurers. For the general insurance industry the determinants of the extent of derivative usage were size, the extent of long tail lines of business written, and the reporting year.

This paper examines the major determinants of a firm's derivatives use for companies listed in Taiwan Stock Exchange in the period from 1997 to 1999. The study finds that the proportion of derivatives use in Taiwan, ranging from 31% to 37%, is comparable to that of the US (35%), but less than that of New Zealand (53%). Firms' derivatives use in Taiwan asymmetrically focuses on currency/forwards derivatives. Industry breakdown illustrates that the electronic industry stands for the heavy user both in terms of number and amount. We show that the vital determinants of a firm's derivatives use are size, the ratio of long-term debt to total debt, the electronic industry dummy, and the export ratio. The fact that firms' derivatives use positively correlated with size and the long-term-debt-to-total-debt ratio implies the capability-willingness hypothesis: only large firms are affordable to engage in derivatives use due to the concern of economies of scale in establishing and maintaining expertise, and these firms demand more derivatives use when they face with high financial risk in debt structure.

We examine how information asymmetry affects a firm's incentive to hedge versus speculate by using foreign currency derivatives. We find a quadratic relation between asymmetric information and a firm's risk management activities. In particular, we find that the firms facing medium level of information asymmetry are more likely to hedge, while firms with very high and low levels of asymmetric information tend to speculate. Moreover, we find that our results hold primary for firms operating in highly competitive industries.

In the last decade there has been a significant increase in the use of derivatives as a vehicle to manage financial risk. The sudden spurt of derivatives has resulted in the Financial Accounting Standards Board (FASB) being forced to develop new standards for quantification and disclosure. The financial standard of interest to this study is Statement of Financial Accounting Standards (SFAS 133). SFAS 133 requires all derivatives, without exception and regardless of the accounting treatment for the underlying asset, liability, or transaction, to be recognized in the balance sheet as either liabilities or assets. SFAS 133 entitled Accounting for derivative activities and hedging (and SFAS 137, which postponed the implementation of SFAS 133 until June 2000) is different from prior standards in that it requires recognition as opposed to mere disclosure in the notes. The justification given for implementing SFAS 133 was to increase transparency to investors. In this study we empirically investigate this issue with particular focus on whether SFAS 133 provides incremental information above that provided by reported earnings, book value, and proxies for omitted variables. We study commercial banks since they are among the most frequent users of large-scale derivative contracts and their use has increased significantly over the last two decades, and in particular over the last five years. Our findings indicate that information regarding total derivative contracts, when disclosed in the financial statements as required by SFAS 133/137, is value relevant to investors. However, investors view this information negatively, perhaps attributing this to higher risk. Losses on holding derivatives are viewed positively and gains are viewed negatively.

The first motivation of the creation of derivatives is hedging risk but unfortunately this motivation has changed over the decades since more conventional contracts are used for speculation. The purpose of this study is to use derivatives solely for hedging while respecting principles of profit and risk sharing. According to previous work about the pricing of Waad Bil Mourabaha and using the conventional expression of the contingent premium option, we will propose a model of Participating CPO.

In this paper, we investigate the applicability of the comonotonicity approach in the context of various benchmark models for equities and commodities. Instead of classical Lévy models as in Albrecher et al. we focus on the Heston stochastic volatility model, the constant elasticity of variance (CEV) model and Schwartz’ 1997 stochastic convenience yield model. We show how the technical difficulties of inverting the distribution function of the sum of the comonotonic random vector can be overcome and that the method delivers rather tight upper bounds for the prices of Asian Options in these models, at least for strikes which are not too large. As a by-product the method delivers super-hedging strategies which can be easily implemented.

A weather derivative is financial instrument that companies or individuals use to hedge against the risk of weather-related losses. Freight derivatives value is derived from the future levels of freight rates, like a dry bulk-a category of cargo stowed in bulk, consisting of grain, cotton, coal, etc., carrying rates, and oil tanker rates.

Numerous empirical studies exist on weather and freight derivatives and their pricing models such as Indifference Pricing Approach, Arbitrage Pricing Model, Financial Pricing model, Benchmark Pricing Approach, Fair Pricing Approach, Actuarial Pricing, Consumer Based Pricing Method, and Index Modeling. This paper aims to address issues relating to the functioning of weather and freight derivatives.

This paper also focuses on the studies published on weather and freight derivatives’ pricing models during the last seven decades (i.e., 1950–2020).

Objectives:

• (1)To understand the vital issues relating to models of weather and freight derivatives.
• (2)To compare pricing models of weather and freight derivatives during the last seven decades (i.e., 1950–2020).

In comparison to hegemony, lesser powers usually struggle for survival between two or more great powers under state power asymmetry, a perpetual phenomenon in international politics. With the rise of China and the increasingly strengthening role of the US in the Asia-Pacific region, it is important to learn how lesser powers manage their relations with the two. To explore this issue, we propose that the strength of state power will constrain the strategies of lesser powers as they choose between the US and China. Borrowing from existing theories and ideas on strategies that include balancing, bandwagoning, and hedging, we argue that the stronger a country’s power, the more likely it will choose a balancing strategy. At the same time, the weaker the country, the more likely that it will go with bandwagoning. Regional middle powers will show varied strategy choices, as they possess a higher degree of freedom in choosing which great power to side with. To validate these arguments, we construct two indicators — differences in trade dependence on the US and China and differences in the voting score consistent with the US and China — to quantify the strategies of lesser powers toward great powers and examine whether the variable of strategies follows the expected pattern. Our analysis shows that countries in the middle of the spectrum of state power demonstrated great freedom in choosing strategies toward the two powers.

This paper examines Malaysia’s evolving relations with China during the second Mahathir administration from 2018 to 2020 in political, economic, and security aspects. While much of the foreign media portrayed the unprecedented change of government in May 2018 as an instance of “pushing back” against China, this paper refutes this simplistic view. It argues that while there were uncertainties in bilateral relations in the initial period following the election, the “Mahathir 2.0” administration ultimately renewed and reaffirmed its relationship with China on a positive note. Economically, the Mahathir 2.0 administration sought to renegotiate Malaysia’s economic relationship with China to align it with its political economy agenda. In terms of security, Prime Minister Mahathir had at first sought to form a new normative framework but later came to adopt a more assertive stand in the South China Sea dispute. At the same time, he showed a continued (but cautious) willingness to engage in defense diplomacy and military-to-military relations with China. This paper analyzes these developments in light of the theoretical framework of neoclassical realism which takes into account the systemic, domestic, and personal factors in influencing the country’s foreign policy. It also interprets these developments as exercises in hedging by a small power in an age of increasing uncertainty.

This paper delves into the interdependent relationship between China and Pakistan and its implications for regional interests. It centers on China’s expanding economic clout in South Asia, primarily through its collaboration with Pakistan. Using the theoretical framework of “hedging,” the paper examines Pakistan’s strategy for balancing its connections with both China and the United States. It also explores the role of small powers in alliance politics and how China’s growing economic and military sway in Pakistan may affect Pakistan-U.S. relations. Ultimately, the paper contends that the United States can mitigate the perceived risk of a Pakistan-China partnership by considering Pakistan’s unique geopolitical position and its intricate association with India.

This paper looks into the case of Southeast Asian states’ policy of hedging toward the U.S.-China competition. It examines Indonesian and Vietnamese similar approach to their respective relations with China and the United States in a shifting regional landscape, despite the fact that the two Southeast states have different ideologies and political systems. The authors argue that the fear of abandonment and entrapment drives the Southeast Asian states’ policy preferences to ensure that the United States and China accommodate their interests. Historical baggage, especially the negative historical experiences of both countries with the United States and China, also inhibits the formation of military alliances with the superpowers. This paper compares the two influential Southeast Asian countries in detail and avoids “regional generalizations” about the countries in the region.