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Risks
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Integrating New Risks into Traditional Risk Management
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Integrating New Risks into Traditional Risk Management

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

Deadline for manuscript submissions: 15 July 2025 | Viewed by 9236

Special Issue Editors

Prof. Dr. Maria Elvira Mancino

E-Mail Website
Guest Editor
Department of Economics and Management, University of Florence, Via delle Pandette, 9, 50127 Florence, Italy
Interests: quantitative finance; probability; stochastic volatility models;
Dr. Federico Maglione

E-Mail Website
Guest Editor
Department of Economics and Management, University of Florence, Via delle Pandette, 9, 50127 Florence, Italy
Interests: credit risk, derivatives; risk management; market integration; quantitative finance; mathematical finance; asset pricing; financial mathematics; option pricing; financial modelling; financial engineering; extreme value theory
Dr. Giacomo Toscano

E-Mail Website
Guest Editor
Department of Economics and Management, University of Florence, 4 - 50121 Florence, Italy
Interests: non-parametric volatilty estimation; stochastic volatility modeling; climate risk management

Special Issue Information

Dear Colleagues,

In recent years, traditional risk management has faced increasing exposure and challenges due to a growing number of shocks and associated risks. Many of these risks are novel and externally generated in relation to the financial system. This unprecedented surge in new risks can be attributed to global events such as the COVID-19 pandemic and the resurgence of inflation. Additionally, new evidence regarding the impact of global climate change on financial markets and real economies adds further complexity to the implementation and testing of effective risk management strategies.

Therefore, nowadays, risk managers are compelled to confront and address an unprecedented array of new risks that must be integrated into existing risk models and assessment methodologies. In this Special Issue, we welcome high-quality research papers that investigate the interaction between emerging risks, such as pandemics, demographic shifts, inflation, and climate change, and more traditional risks, including market, credit, liquidity, volatility, and model risks, among others.

Authors are kindly invited to submit original research focusing on models and methodologies designed to account for and measure the impact of these new sources of risk on existing risk models and risk management strategies.

Prof. Dr. Maria Elvira Mancino
Dr. Federico Maglione
Dr. Giacomo Toscano
Guest Editors

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

  • risk management
  • pandemic risk
  • inflation risk
  • climate risk
  • credit risk
  • volatility risk

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Published Papers (8 papers)

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Research

25 pages, 2502 KiB  
Article
Transition Risk in Climate Change: A Literature Review
by Elisa Di Febo and Eliana Angelini
Risks 2025, 13(4), 66; https://doi.org/10.3390/risks13040066 - 28 Mar 2025
Viewed by 536
Abstract
Climate risk is the negative effect of climate change on several aspects of the environment, business, and society. There are two categories of climate risks: physical risks include direct impacts due to extreme events and chronic changes due to climate modifications that have [...] Read more.
Climate risk is the negative effect of climate change on several aspects of the environment, business, and society. There are two categories of climate risks: physical risks include direct impacts due to extreme events and chronic changes due to climate modifications that have become commonplace; the transition risk arises from the economic and regulatory adjustments required to shift toward reducing greenhouse gas emissions and the transition to renewable energy. The problem, in financial terms, is the correct assessment and quantification of transition risk, as it is not univocal in the literature. This research aims to provide a literature review on transition risk that permits filling this gap and identifying the proxies used for its representation and evaluation. Moreover, the analysis considers the critical aspect of the connection between transition and credit risk, as firms exposed to high transition risks may face challenges in maintaining creditworthiness. Results highlight the most commonly used proxies, including carbon pricing, CO2 or GHG emissions, and metrics from various databases. However, the findings emphasize the importance of integrating these indicators with broader factors, such as a company’s negative environmental impacts (e.g., waste production and water usage) and delays in technological adaptation from a forward-looking perspective. Full article
(This article belongs to the Special Issue Integrating New Risks into Traditional Risk Management)
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19 pages, 1836 KiB  
Article
The Impact of Nature Restoration Law on Equity Behavior: How Biodiversity Risk Affects Market Risk
by Paolo Capelli, Lorenzo Gai, Federica Ielasi and Marco Taddei
Risks 2025, 13(3), 59; https://doi.org/10.3390/risks13030059 - 19 Mar 2025
Viewed by 209
Abstract
This study examines the market reaction to the approval of the Nature Restoration Law, a key component of the EU Biodiversity Strategy, and its implications for biodiversity-related financial risks. Using an event study methodology, we analyze the equity price movements of companies listed [...] Read more.
This study examines the market reaction to the approval of the Nature Restoration Law, a key component of the EU Biodiversity Strategy, and its implications for biodiversity-related financial risks. Using an event study methodology, we analyze the equity price movements of companies listed in the MSCI Europe Index that are equally weighted in relation to the announcement. We select the RepRisk Due Diligence Score, focusing on incidents linked to landscapes, ecosystems, and biodiversity, as a measure of biodiversity risk. At first, it seems that companies with a high RepRisk Due Diligence Score show limited or positive abnormal returns, suggesting that biodiversity risks are already priced for companies that have experienced incidents linked to this issue. Conversely, firms with lower biodiversity risk exposure see null or negative impacts, reflecting heightened investor concerns about new environmental regulations or compliance costs. Although the event does not have a systemic impact on European companies in the index, it seems that some sectors are affected when analyzed using parametric and non-parametric distributions. Full article
(This article belongs to the Special Issue Integrating New Risks into Traditional Risk Management)
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19 pages, 941 KiB  
Article
ESG and Financial Distress: The Role of Bribery, Corruption, and Fraud in FTSE All-Share Companies
by Probowo Erawan Sastroredjo and Tarsisius Renald Suganda
Risks 2025, 13(3), 41; https://doi.org/10.3390/risks13030041 - 24 Feb 2025
Viewed by 640
Abstract
Our investigation examined the impact of ESG (Environmental, Social, and Governance) activities on corporate financial distress. This research utilised data from companies listed in the FTSE All-Share index from 2014 to 2022 from the Refinitiv EIKON database. We incorporated year- and industry-fixed effects [...] Read more.
Our investigation examined the impact of ESG (Environmental, Social, and Governance) activities on corporate financial distress. This research utilised data from companies listed in the FTSE All-Share index from 2014 to 2022 from the Refinitiv EIKON database. We incorporated year- and industry-fixed effects into our analysis to address changing economic conditions and industry-specific effects. ESG scores were used as a proxy for ESG activities, while Z-scores were utilised to gauge financial distress. The results unveiled a compelling trend: ESG activities showcased a negative correlation with financial distress, implying that companies actively involved in ESG actions are less likely to face default, even after incorporating several robustness and endogeneity tests. Moreover, when examining the role of bribery, corruption, and fraud issues (negative issues) as a moderating factor, our findings revealed that lower negative issues strengthen the negative relationship between ESG (governance pillar) and financial distress. This suggests that governance mechanisms effectively reduce financial distress in less corrupt environments, where institutional quality supports properly implementing governance practices. These findings offer valuable insights for companies seeking to mitigate financial distress by adopting ESG strategies. Full article
(This article belongs to the Special Issue Integrating New Risks into Traditional Risk Management)
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19 pages, 476 KiB  
Article
On the Curvature of the Bachelier Implied Volatility
by Elisa Alòs and David García-Lorite
Risks 2025, 13(2), 27; https://doi.org/10.3390/risks13020027 - 3 Feb 2025
Viewed by 901
Abstract
Our aim in this paper is to analytically compute the at-the-money second derivative of the Bachelier implied volatility curve as a function of the strike price for correlated stochastic volatility models. We also obtain an expression for the short-term limit of this second [...] Read more.
Our aim in this paper is to analytically compute the at-the-money second derivative of the Bachelier implied volatility curve as a function of the strike price for correlated stochastic volatility models. We also obtain an expression for the short-term limit of this second derivative in terms of the first and second Malliavin derivatives of the volatility process and the correlation parameter. Our analysis does not need the volatility to be Markovian and can be applied to the case of fractional volatility models, both with H<1/2 and H>1/2. More precisely, we start our analysis with an adequate decomposition formula of the curvature as the curvature in the uncorrelated case (where the Brownian motions describing asset price and volatility dynamics are uncorrelated) plus a term due to the correlation. Then, we compute the curvature in the uncorrelated case via Malliavin calculus. Finally, we add the corresponding correlation correction and we take limits as the time to maturity tends to zero. The presented results can be an interesting tool in financial modeling and in the computation of the corresponding Greeks. Moreover, they allow us to obtain general formulas that can be applied to a wide class of models. Finally, they provide us with a precise interpretation of the impact of the Hurst parameter H on this curvature. Full article
(This article belongs to the Special Issue Integrating New Risks into Traditional Risk Management)
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18 pages, 3314 KiB  
Article
Quantum Majorization in Market Crash Prediction
by J Rhet Montana, Luis A. Souto Arias, Pasquale Cirillo and Cornelis W. Oosterlee
Risks 2024, 12(12), 204; https://doi.org/10.3390/risks12120204 - 17 Dec 2024
Viewed by 1278
Abstract
We introduce the Quantum Alarm System, a novel framework that combines the informational advantages of quantum majorization applied to tail pseudo-correlation matrices with the learning capabilities of a reinforced urn process, to predict financial turmoil and market crashes. This integration allows for a [...] Read more.
We introduce the Quantum Alarm System, a novel framework that combines the informational advantages of quantum majorization applied to tail pseudo-correlation matrices with the learning capabilities of a reinforced urn process, to predict financial turmoil and market crashes. This integration allows for a more nuanced analysis of the dependence structure in financial markets, particularly focusing on extreme events reflected in the tails of the distribution. Our model is tested using the daily log-returns of the 30 constituents of the Dow Jones Industrial Average, spanning from 2 January 1992 to 30 August 2024. The results are encouraging: in the validation set, the 12-month ahead probability of correct alarm is between 73% and 80%, while maintaining a low false alarm rate. Thanks to the application of quantum majorization, the alarm system effectively captures non-traditional and emerging risk sources, such as the financial impact of the COVID-19 pandemic—an area where traditional models often fall short. Full article
(This article belongs to the Special Issue Integrating New Risks into Traditional Risk Management)
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23 pages, 4592 KiB  
Article
Debt Sustainability in the Context of Population Ageing: A Risk Management Approach
by Samantha Ajovalasit, Andrea Consiglio and Davide Provenzano
Risks 2024, 12(12), 188; https://doi.org/10.3390/risks12120188 - 26 Nov 2024
Cited by 1 | Viewed by 1261
Abstract
The ageing of the population has negative effects on the gross domestic product (GDP), influencing various economic and social aspects. These effects, in turn, contribute to an increase in the debt-to-GDP ratio, raising concerns about the long-term sustainability of public debt. The objective [...] Read more.
The ageing of the population has negative effects on the gross domestic product (GDP), influencing various economic and social aspects. These effects, in turn, contribute to an increase in the debt-to-GDP ratio, raising concerns about the long-term sustainability of public debt. The objective of our study is to evaluate the possible dynamics of debt sustainability with a certain level of probability. The analysis employs the stochastic modelling of risk factors influencing the debt-to-GDP ratio, particularly emphasising the economic consequences of population ageing. Using advanced risk management techniques, we aim to provide a robust assessment of how future demographic outlooks impact debt sustainability. Full article
(This article belongs to the Special Issue Integrating New Risks into Traditional Risk Management)
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19 pages, 692 KiB  
Article
Climate-Related Default Probabilities
by Augusto Blanc-Blocquel, Luis Ortiz-Gracia and Simona Sanfelici
Risks 2024, 12(11), 181; https://doi.org/10.3390/risks12110181 - 14 Nov 2024
Viewed by 1382
Abstract
Climate risk refers to the risks associated with climate change and has already started to impact various sectors of the economy. In this work, we focus on the impact of physical risk on the probability of default for a firm in the agribusiness [...] Read more.
Climate risk refers to the risks associated with climate change and has already started to impact various sectors of the economy. In this work, we focus on the impact of physical risk on the probability of default for a firm in the agribusiness sector. The probability of default is estimated based on the Merton model, where the firm defaults when its asset value falls below the threshold defined by its liabilities. We study the relationship between the stock value of the firm and global surface temperature anomalies, observing that an increase in temperature negatively affects the stock value and, consequently, the asset value of the firm. A decrease in the asset value of the firm translates into an increase in its probability of default. We also propose a model to assess the exposure of the firm to transition risk. Full article
(This article belongs to the Special Issue Integrating New Risks into Traditional Risk Management)
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23 pages, 789 KiB  
Article
Risk Retention and Management Implications of Medical Malpractice in the Italian Health Service
by Ilaria Colivicchi, Tommaso Fabbri and Antonio Iannizzotto
Risks 2024, 12(10), 160; https://doi.org/10.3390/risks12100160 - 8 Oct 2024
Cited by 1 | Viewed by 1839
Abstract
This work provides an economic exploration of the multifaceted world of medical malpractice risk. Third party liability insurance plays a central role in protecting healthcare providers and public care institutions from the financial consequences of medical malpractice claims, although in recent years, the [...] Read more.
This work provides an economic exploration of the multifaceted world of medical malpractice risk. Third party liability insurance plays a central role in protecting healthcare providers and public care institutions from the financial consequences of medical malpractice claims, although in recent years, the industry landscape has been characterised by periods of distress for this type of protection, with rising litigations and reimbursement costs, resulting in a peculiarly complex market. For the Italian context, the study focuses on the financial repercussions for healthcare institutions of the growing trend towards risk retention practises, legally empowered by the introduction of Law No. 24/2017. The analysis employs Generalised Linear Models for the regressive approach to incorporate the structural and organisational characteristics of hospitals and uses quantitative simulations to explore different scenarios at a regional aggregate level. Due to the limited existing literature and data on the topic, this research aims to provide new methods for effectively understanding and managing this type of risk, thereby supporting decision-making processes in the healthcare sector. Full article
(This article belongs to the Special Issue Integrating New Risks into Traditional Risk Management)
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