International Journal of Financial Engineering

This study attempts to investigate whether the financing preferences of small and medium enterprises (SMEs)’ entrepreneurs of Bangladesh follow capital structure theory by investigating into Pecking Order Theory (POT). For this study, cross-sectional primary data have been collected through questionnaire. The answers of the questions have been measured through five points Likert Scale. The scores were analyzed using mean score. To analyze the data, some descriptive statistics have been used. Besides, one sample one tail $t$-test has been applied to test the hypotheses. The study finds that the entrepreneurs themselves do not believe that there is an information asymmetry in debt market. But their perception regarding debt market ascertained the presence of the information asymmetry between SME sector (entrepreneurs of SME) and the debt market (banks). The answers of respondents are statistically significant that they want to use the retained profits first, bank loan as second and want to issue external equity (taking partner/s) as a third option among these three alternatives of additional financing. This tendency of the respondents towards financing is consistent with POT. Therefore, Government policy for motivating SMEs to keep formal accounting should be introduced to reduce the information asymmetry in debt market along with taking proper initiatives to increase accessibility of SMEs to institutional credit.

Good corporate governance has been on the corporate agenda for the last two decades. Among other issues, female’s presentation in the board rooms received much more attention. This study examines the participation of females as an executive in corporate management and financial performance of the engineering sector of Pakistan. The data comes from listed companies at the Pakistan Stock exchange from 2010 to 2019. By using the data of 12 companies, it is found that there is a significant positive relationship between board diversity and financial performance. Moreover, board size and board meetings and CEO education have a significant positive influence on the financial performance of firms. However, board independence has a significant negative influence on financial performance.

This study aims to find the influential factors of adopting International Accounting Standards (IAS) in the banking industries of Bangladesh. This study is based on two-stage least-squares method for 561 unbalanced panel observations of 32 commercial banks in Bangladesh over the period from 2000 to 2018. To analyze the study, it uses macroeconomic and bank-level variables in which probability of IAS adoption, economic growth, and profitability are the main variables. The findings of the study indicate that economic growth has a significant relationship with IAS adoption in the banking industries of Bangladesh, as well as all variables relating to profitability affect IAS adoption excluding return on equity (ROE). SIZE and CAR do not influence IAS adoption from the bank-level variables, liquidity has a significant and negative relationship with IAS adoption and assets growth and total loan and advances (TLAs) have a significant impact on the IAS in banking industries of Bangladesh. The result of the study will be supportive to deliver precious information and unfathomable understanding as regards IAS and factors influencing IAS in banking sector. This is worthwhile to the researchers, students, and policy-makers while making critical decision about the adoption and implementation of IAS. Based on this study, it was suggested among others that adoption of IAS should to be a dynamic part of bank’s strategy because it upturns quality of reporting by increasing transparency, comparability, and acceptability.

The two most popular equity and FX derivatives pricing models in banking practice are the local volatility model and the Heston model. While the former has the appealing property that it can be calibrated exactly to any given set of arbitrage free European vanilla option prices, the latter delivers more realistic smile dynamics. In this paper, we combine both modeling approaches to the Heston stochastic local volatility model. We build upon a theoretical framework that has been already developed and focus on the numerical model calibration which requires special care in the treatment of mixed derivatives and in cases where the Feller condition is not met in the Heston model leading to a singular transition density at zero volatility. We propose a finite volume scheme to calibrate the model after a suitable transformation of the model equation and demonstrate its accuracy in numerical test cases using real market data.

This study is an attempt to evaluate and compare the performance of State-Owned Commercial Banks (SOCBs) and Private Commercial Banks (PCBs) of Bangladesh. CAMEL rating model has been applied to confess where a bank can be successful and where it has weaknesses. Data have been collected from four SOCBs and eight PCBs for the years 2014–2017. Among the selected SOCBs, it is found that Agrani Bank holds “Satisfactory” position where Sonali Bank holds “Fair” position through the year 2014–2017. On the other hand, Janata bank has improved its position from “Fair” to “Satisfactory” for the year 2016 and 2017. Moreover, Rupali Bank holds ‘Satisfactory’ position only for the year 2017 where this position was “Fair” for the year 2014–2016. On the other hand, it is found that all the selected PCBs hold “Satisfactory” position through the year 2014–2017. Though the composite rating for both types of banks (SOCBs and PCBs) is in “Satisfactory level”, Rank-1 is given to PCBs and Rank-2 is given to SOCBs. CAMEL ratio for “Asset quality” for both types of banks (SOCBs and PCBs) are showing “Dissatisfactory level”. “Earning quality” of SOCBs is showing at a “Marginal level”. Therefore, proper attention should be given to manage the “Asset quality” and SOCBs should increase the “Earning quality”.

Competitions among enterprises are actually competitions among brands, and competitions among brands depend on the level of brand equity. Brand equity is vital for companies to strengthen their competitive position. Most previous studies revealed that two sets of the brand equity measure which was brand satisfaction and brand loyalty grouped into the same loyalty dimension. However, this study separates these two sets of measures into customer satisfaction and customer loyalty and examines the mediating effects of customer loyalty between brand knowledge, customer satisfaction, and customer-based brand equity. This study aims to investigate the effect of brand awareness, brand association, perceived quality, and customer satisfaction on customer-based brand equity in China mobile phone industry, through customer loyalty, which provides the basis for brand strategic decision-making. Based on the data collected through top five and other mobile phone brands in China, the empirical tests used a structural equation modeling via partial least squares approach to prove the hypotheses. The results show that customer loyalty has a significant mediating effect on relationships between brand associations with brand awareness, perceived quality, and customer satisfaction on brand equity.

We propose a multivariate Hawkes process to model the interaction between the non-high frequency traders (NHFTs) behavior (Buy and sell) and high frequency traders (HFTs) behavior (Buy and sell). We apply our model to the intraday transaction data of the public sector banks stock in India, which is sampled from March 2012 to June 2012. We find that the mutually-exciting NHFT and HFT behaviors benefit the stocks, which have better average return above the average return of the public sector bank index. We further identify the granger causality relationship for mutually exciting dominating stocks that HFTs activities cause the activities of NHFTs. In other words, NHFTs are market followers in those stocks.

This paper examines the empirical performance of four stochastic volatility option pricing models: Heston, Heston$++$, Bates and Heston–Hull–White. To compare these models, we use individual stock options data from January 1996 to August 2014. The comparison is made with respect to pricing and hedging performance, implied volatility surface and risk-neutral return distribution characteristics, as well as performance across industries and time. We find that the Heston model outperforms the other models in terms of in-sample pricing, whereas Heston$++$ model outperforms the other models in terms of out-of-sample hedging. This suggests that taking jumps or stochastic interest rates into account does not improve the model performance after accounting for stochastic volatility. We also find that the model performance deteriorates during the crises as well as when the implied volatility surface is steep in the maturity or strike dimension.

This paper presents a generalization of forward start options under jump diffusion framework of Duffie et al. [Duffie, D, J Pan and K Singleton (2000). Transform analysis and asset pricing for affine jump-diffusions, Econometrica 68, 1343–1376.]. We assume, in addition, the short-term rate is governed by the CIR dynamics introduced in Cox et al. [Cox, JC, JE Ingersoll and SA Ross (1985). A theory of term structure of interest rates, Econometrica 53, 385–408.]. The instantaneous volatilities are correlated with the dynamics of the stock price process, whereas the short-term rate is assumed to be independent of the dynamics of the price process and its volatility. The main result furnishes a semi-analytical formula for the price of the Forward Start European call option. It is derived using probabilistic approach combined with the Fourier inversion technique, as developed in Ahlip and Rutkowski [Ahlip, R and M Rutkowski (2014). Forward start foreign exchange options under Heston’s volatility and CIR interest rates, Inspired By Finance Springer, pp. 1–27], Carr and Madan [Carr, P and D Madan (1999). Option valuation using the fast Fourier transform, Journal of Computational Finance 2, 61–73, Carr, P and D Madan (2009). Saddle point methods for option pricing, Journal of Computational Finance 13, 49–61] as well as Levendorskiĩ [Levendorskiĩ, S (2012). Efficient pricing and reliable calibration in the Heston model, International Journal of Applied Finance 15, 1250050].

COVID-19 and the worldwide lockdown left life in worse condition in which people struggle to meet their livelihood. People are concerned about their lives, jobs, savings, and investments. This paper had analyzed the changes in the mutual fund industry in India due to the virus outbreak from December 2019 to May 2020. A sample of 25 equity-oriented direct growth funds has been considered for this study to analyze their performance along with the sector-wise differences. The results show that the value of majority of the funds had plunged, while some funds had rebounded during the period.

This paper provides a theoretical foundation for complete/incomplete contracts to extend game theory for multi-agent interactions. We explain why rational agents may agree to sign incomplete contracts even though signing a complete contract incurs no cost. Some arguments claim that an incomplete contract creates strategic uncertainty. Under common assumptions of rationality, an incomplete contract can be the final solution if the agents’ attitudes toward uncertainty are not neutral. Assuming that agents can form coalitions by participating in the game and they are uncertainty averse, we develop equilibrium solutions for complete/incomplete contracts in an extensive game of multi-agent interactions.

The MSME sector is the most demanded, vibrant and dynamic sector which contributes highly to country’s manufacturing output, employment and exports. As this sector contains more than 80% of the total enterprises of the economy, its labor intensity is much higher than that of any other large enterprise. MSME is an important pillar of Indian economy as this sector is continuously contributing greatly to the growth and development of Indian economy by creating around 70 million employment, manufacturing more than 6000 products, contributing about 45% of manufacturing production and 40% from exports. Presently, the MSME sector is mostly dominated by microenterprises. This signifies that this sector is inviting and giving opportunities to new people for earning and being independent through its available schemes. Therefore, this paper is focused on the financial performance analysis of MSME sector.

This paper presents a default structural model of sovereign debt under macroeconomic conditions and periodic news. I model the macroeconomic conditions to be a finite state of Markov chain, and the periodic news to be a predictable factor in the drifting and the diffusion parts in the underlying value of the representative firm. The innovation of our model is to characterize the price of sovereign debt and the sovereign credit spread associated with macroeconomic conditions, and to model periodic news with both continuous factors and periodic factors. Both the defaultable yield-to-maturity, the sovereign credit spread and the duration are related to the finite state of Markov chain and periodic news. Furthermore, we obtain a closed-form solution for the two-state Markov chain associated to macroeconomic conditions and periodical information update.