Contemporary Risk Management
36 Pages Posted: 24 May 2016
Date Written: May 21, 2016
The purpose of this section on risk management is to analyze the contemporary research in this field. Fifteen selected research studies were compared and contrasted to provide a better understanding on how to improve hedging performance and reduce risk to meet corporate financial goals. An investigation and evaluation of recent trends with risk management to understand best practices in developing hedging and risk mitigation techniques was conducted. The first research study explored was about complex economic systems from Smith. The second pertained to tail risk in Asian markets by So and Tsu. The third investigated index volatility with the S&P 500 using different GARCH models by Srinivasan. The fourth study involved extreme returns probed by Viebig and Poddig. The next investigation was with concerns in operation risk by Neil, Hager and Anderson. The sixth research topic proposed by Reimann and Tupak explored evolutionary financial stylized facts. Seventh, potential future exposure relating to credit risk was inspected by Ng, Peterson, and Rodriguez. The eighth article considered the defaultable term structure in the context of credit events by Bruti-Liberati et al.
The ninth study illustrated defaultable swaps modeling of multi-name credit derivatives in a default basket by Jabbour, Kramin, and Young. The tenth research study explored commodity price risk management in terms of Value-at-Risk and Liquidity-adjusted Value-at-Risk by Al Janabi. Chang, McAleer, and Tansuchat was cited in the eleventh research study involving correlations in the crude oil markets. For the twelfth category static hedging in the hydropower markets was explored by Fleten, Brathen, and Nissen-Meyer. For the thirteenth study investigated, which was cite from Masood, Aktan and Chandhary, involved investment decisions in risk management by Saudi risk managers. The fourteenth study discussed hedging credit and interest rate derivatives by Errais. Lastly, portfolio optimization and dynamic hedging using receding horizontal control methods was engaged by Meindl.
In the conclusion of this Depth component a discussion on the synthesis of relevant research related to risk management modeling and techniques was conducted. Comments on the financial crisis of 2008 and how to monitor or possibly mitigate such a crisis will be mentioned.
Within the conclusion section each research category mentioned above was summarized within the framework of risk management which promotes social change by reducing portfolio risk and asset depreciation. In addition to the summary of these research studies, some questions were explored to provide possible investigational paths on hedging performance and risk mitigation. For example, can risk management techniques and models be useful to the average investor or trader? Should a risk manager implement hedging strategies in a portfolio? For complicated firms is there a graphical way to monitor risk? It is within this framework that current research in corporate finance related to risk management was explored.
Keywords: Complex Economic Systems, Tail Risk, Index Volatility, Extreme Returns, Operational Risk, Evolutionary Financial Stylized Facts, Potential Future Exposure, Defaultable Term Structure, Commodity Price Risk Management, Correlation in Crude Oil Markets, Static Hedging in Hydropower, Investment Decision
JEL Classification: C10, C49, C5, C53, C63, E17, E30, F47
Suggested Citation: Suggested Citation