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Risks
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Financial Risks and Regulation
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Financial Risks and Regulation

A special issue of Risks (ISSN 2227-9091).

Deadline for manuscript submissions: closed (30 June 2019) | Viewed by 22872

Special Issue Editor

Prof. Dr. Ajay Subramanian

E-Mail Website
Guest Editor
Department of Risk Management & Insurance, Robinson College of Business, Georgia State University, Atlanta, GA, USA
Interests: financial economics; insurance economics; mathematical finance; microeconomic theory; industrial organization
Special Issues, Collections and Topics in MDPI journals

Special Issue Information

Dear Colleagues,

The regulation of financial risks is a topic of active debate among academics, industry practitioners, and policymakers. In the aftermath of the 2007–2009 Great Recession, there was a coordinated effort by regulatory bodies around the world to strengthen oversight and regulation of banks, as evidenced by the passage of the Dodd–Frank Act and the ratification of the Basel III accords. However, the current U.S. government is aggressively moving towards relaxing bank oversight and regulation, thereby suggesting that the debate on regulation remains unresolved. The world is also witnessing climatic events of increasing severity stemming from climate change in recent years, and this is leading to large and catastrophic losses of lives and property. Only a portion of these catastrophic losses are insured, but even limited exposure to losses could lead (and has led) insurers to face insolvency. Consequently, the regulation of insurers is also an issue of very high importance, as evidenced by the ratification of the Solvency II regulation for insurers along with the Basel III accords. For this Special Issue of Risks, we invite theoretical and empirical contributions that pertain to financial regulation in the broadest sense. Topics of interest include (but are not limited to) bank capital regulation, systemic risk, insurance regulation, securitization, the impact of financial technology (“Fintech”) on regulation, etc.

Prof. Ajay Subramanian
Guest Editor

Manuscript Submission Information

Manuscripts should be submitted online at www.mdpi.com by registering and logging in to this website. Once you are registered, click here to go to the submission form. Manuscripts can be submitted until the deadline. All submissions that pass pre-check are peer-reviewed. Accepted papers will be published continuously in the journal (as soon as accepted) and will be listed together on the special issue website. Research articles, review articles as well as short communications are invited. For planned papers, a title and short abstract (about 100 words) can be sent to the Editorial Office for announcement on this website.

Submitted manuscripts should not have been published previously, nor be under consideration for publication elsewhere (except conference proceedings papers). All manuscripts are thoroughly refereed through a single-blind peer-review process. A guide for authors and other relevant information for submission of manuscripts is available on the Instructions for Authors page. Risks is an international peer-reviewed open access monthly journal published by MDPI.

Please visit the Instructions for Authors page before submitting a manuscript. The Article Processing Charge (APC) for publication in this open access journal is 1800 CHF (Swiss Francs). Submitted papers should be well formatted and use good English. Authors may use MDPI's English editing service prior to publication or during author revisions.

Keywords

  • Bank capital regulation
  • Insurance regulation
  • Systemic risk
  • Catastrophe risk
  • Securitization
  • Impact of Fintech on regulation
  • Risk measures

Published Papers (5 papers)

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Research

18 pages, 464 KiB  
Article
Coherent-Price Systems and Uncertainty-Neutral Valuation
by Patrick Beissner
Risks 2019, 7(3), 98; https://doi.org/10.3390/risks7030098 - 17 Sep 2019
Viewed by 2388
Abstract
This paper considers fundamental questions of arbitrage pricing that arises when the uncertainty model incorporates ambiguity about risk. This additional ambiguity motivates a new principle of risk- and ambiguity-neutral valuation as an extension of the paper by Ross (1976) (Ross, Stephen A. 1976. [...] Read more.
This paper considers fundamental questions of arbitrage pricing that arises when the uncertainty model incorporates ambiguity about risk. This additional ambiguity motivates a new principle of risk- and ambiguity-neutral valuation as an extension of the paper by Ross (1976) (Ross, Stephen A. 1976. The arbitrage theory of capital asset pricing. Journal of Economic Theory 13: 341–60). In the spirit of Harrison and Kreps (1979) (Harrison, J. Michael, and David M. Kreps. 1979. Martingales and arbitrage in multiperiod securities markets. Journal of Economic Theory 20: 381–408), the paper establishes a micro-economic foundation of viability in which ambiguity-neutrality imposes a fair-pricing principle via symmetric multiple prior martingales. The resulting equivalent symmetric martingale measure set exists if the uncertain volatility in asset prices is driven by an ambiguous Brownian motion. Full article
(This article belongs to the Special Issue Financial Risks and Regulation)
12 pages, 1046 KiB  
Article
Bank Competition in India: Some New Evidence Using Risk-Adjusted Lerner Index Approach
by Rakesh Arrawatia, Arun Misra, Varun Dawar and Debasish Maitra
Risks 2019, 7(2), 44; https://doi.org/10.3390/risks7020044 - 18 Apr 2019
Cited by 5 | Viewed by 4052
Abstract
Banks in India have been gone through structural changes in the last three decades. The prices that bank charge depend on the competitive levels in the banking sector and the risk the assets and liabilities carry in banks’ balance sheet. The traditional Lerner [...] Read more.
Banks in India have been gone through structural changes in the last three decades. The prices that bank charge depend on the competitive levels in the banking sector and the risk the assets and liabilities carry in banks’ balance sheet. The traditional Lerner Index indicates competitive levels. However, this measure does not account for the risk, and this study introduces a risk-adjusted Lerner Index for evaluating competition in Indian banking for the period 1996 to 2016. The market power estimated through the adjusted Lerner Index has been declining since 1996, which indicates an improvement in competitive condition for the overall period. Further, as indicated by risk-adjusted Lerner Index, the Indian banking system exerts much less market power and hence are more competitive contrary to what is suggested by traditional Lerner index. Full article
(This article belongs to the Special Issue Financial Risks and Regulation)
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19 pages, 557 KiB  
Article
Recent Regulation in Credit Risk Management: A Statistical Framework
by Logan Ewanchuk and Christoph Frei
Risks 2019, 7(2), 40; https://doi.org/10.3390/risks7020040 - 14 Apr 2019
Cited by 5 | Viewed by 5505
Abstract
A recently introduced accounting standard, namely the International Financial Reporting Standard 9, requires banks to build provisions based on forward-looking expected loss models. When there is a significant increase in credit risk of a loan, additional provisions must be charged to the income [...] Read more.
A recently introduced accounting standard, namely the International Financial Reporting Standard 9, requires banks to build provisions based on forward-looking expected loss models. When there is a significant increase in credit risk of a loan, additional provisions must be charged to the income statement. Banks need to set for each loan a threshold defining what such a significant increase in credit risk constitutes. A low threshold allows banks to recognize credit risk early, but leads to income volatility. We introduce a statistical framework to model this trade-off between early recognition of credit risk and avoidance of excessive income volatility. We analyze the resulting optimization problem for different models, relate it to the banking stress test of the European Union, and illustrate it using default data by Standard and Poor’s. Full article
(This article belongs to the Special Issue Financial Risks and Regulation)
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25 pages, 1802 KiB  
Article
CEO Overconfidence and Shadow-Banking Life Insurer Performance Under Government Purchases of Distressed Assets
by Shi Chen, Jyh-Horng Lin, Wenyu Yao and Fu-Wei Huang
Risks 2019, 7(1), 28; https://doi.org/10.3390/risks7010028 - 5 Mar 2019
Viewed by 3430
Abstract
In this paper, we develop a contingent claim model to evaluate the equity, default risk, and efficiency gain/loss from managerial overconfidence of a shadow-banking life insurer under the purchases of distressed assets by the government. Our paper focuses on managerial overconfidence where the [...] Read more.
In this paper, we develop a contingent claim model to evaluate the equity, default risk, and efficiency gain/loss from managerial overconfidence of a shadow-banking life insurer under the purchases of distressed assets by the government. Our paper focuses on managerial overconfidence where the chief executive officer (CEO) overestimates the returns on investment. The investment market faced by the life insurer is imperfectly competitive, and investment is core to the provision of profit-sharing life insurance policies. We show that CEO overconfidence raises the default risk in the life insurer’s equity returns, thereby adversely affecting the financial stability. Either shadow-banking involvement or government bailout attenuates the unfavorable effect. There is an efficiency gain from CEO overconfidence to investment. Government bailout helps to reduce the life insurer’s default risk, but simultaneously reduce the efficiency gain from CEO overconfidence. Our results contribute to the managerial overconfidence literature linking insurer shadow-banking involvement and government bailout in particular during a financial crisis. Full article
(This article belongs to the Special Issue Financial Risks and Regulation)
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21 pages, 1689 KiB  
Article
The OFR Financial Stress Index
by Phillip J. Monin
Risks 2019, 7(1), 25; https://doi.org/10.3390/risks7010025 - 26 Feb 2019
Cited by 32 | Viewed by 6978
Abstract
We introduce a financial stress index that was developed by the Office of Financial Research (OFR FSI) and detail its purpose, construction, interpretation, and use in financial market monitoring. The index employs a novel and flexible methodology using daily data from global financial [...] Read more.
We introduce a financial stress index that was developed by the Office of Financial Research (OFR FSI) and detail its purpose, construction, interpretation, and use in financial market monitoring. The index employs a novel and flexible methodology using daily data from global financial markets. Analysis for the 2000–2018 time period is presented. Using a logistic regression framework and dates of government intervention in the financial system as a proxy for stress events, we found that the OFR FSI performs well in identifying systemic financial stress. In addition, we find that the OFR FSI leads the Chicago Fed National Activity Index in a Granger causality analysis, suggesting that increases in financial stress help predict decreases in economic activity. Full article
(This article belongs to the Special Issue Financial Risks and Regulation)
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