Exploring the main factors that determine bond spreads with respect to Treasury rates is one of the most critical issues in the corporate debt market. Credit risk has long been perceived as the most important determinant of bond spreads (Fisher, 1959). One of the most critical parameters in credit risk models is asset volatility, which includes idiosyncratic and systematic components. However, these models do not distinguish between them. Chapter 2 investigates the impact of idiosyncratic volatility on bond portfolio spreads between 2000 and 2010. While the prediction of traditional asset pricing models is that firm-specific risk should be diversified away at aggregate level, I find idiosyncratic volatility plays an incremental role in explaining bond portfolio spreads beyond the market factors. Recovery is an important measurement of credit risk additional to default probability. Chapter 3 focuses on the estimation of firm recovery after bankruptcy using the Leland and Toft (1996) model. Using a large sample of Chapter 11 filings from 1996 to 2007, I find that the recovery derived from the Leland and Toft model has strong explanatory power on the debt recovery observed in the market. Recent literature finds that all extant credit risk models significantly underestimate bond spreads, especially for investment grade bonds of short maturity. Chapter 4 identifies a heretofore ignored component, perceived accounting misstatement, by regressing bond spreads on the proxy of accounting misstatement propensity, while controlling for issuers’ default risk and bond illiquidity risk between January 1994 and June 2002. My thesis deepens the understanding of bond price discovery mechanisms and presents an important challenge for future research to incorporate the strong empirical relationship between idiosyncratic volatility and bond yields in asset pricing models. My thesis also sheds light on the accurate prediction of debt recovery, which is important to the valuation and hedging of risky debt and credit derivatives. Furthermore, my thesis assists in solving the credit spread puzzle by identifying a new risk factor. Overall, my thesis provides new insights into research on the corporate debt market and has important implications for academic scholars and market practitioners. / Thesis (Ph.D, Management) -- Queen's University, 2013-05-01 07:43:17.718

The examination of the topic of market risk management in Islamic finance is a complex endeavour. At a basic level, the subject matter, being multifarious in a manner that mixes religion and economics, requires the conjoining of religious faith with scientific objectivity in order to ascertain the truth contained in the scripture as it pertains to the Mua’amalat (dealings between individuals) matter of entering into financial contracts with others to manage market risk exposures. Moreover, the complexity is compounded due to the need to disentangle the ambiguity that has beset the discourse on the topic due to historically being mostly legal-centric with a focus on debating the contractual elements rather than attempting to comprehensively address the myriad issues that relate to market risk management in contemporary contexts. These issues, for the most part, revolve around the reliance on market risk transfer as a strategy and derivative contracts, with monetary underlying variables, as tools to implement that strategy. Thus, the journey of investigating the rationale, permissibility, and usage of derivative hedging instruments for market risk management in Islamic finance is, essentially, an undertaking that seeks to engage in a wide-ranging and multi-layered examination of the subject matter as well as the exploration of new areas of relative significance. This, in turn, and subsequent to the analysis of data generated from documentary sources and forty-one interviews which were collected from numerous sources within four locations, led to the elaboration of the contention that market risk management through derivative instruments for legitimate hedging purposes should not be prohibited in the Shari’a, albeit with certain conditions that limit unproductive behaviour. The basis for the aforementioned contention is built on the fact that market risk management has undergone a paradigm shift in how exposures are identified and measured as well as in the emergence of innovative tools which can result in a better ability to address the opportunities and challenges facing institutions that provide value to society (i.e., the real sector). Moreover, there is little substantive evidence that proves that the utilization of derivative instruments for hedging purposes leads its users to partaking in transactions that circumvent the prohibition of Riba (usury), Gharar (excessive uncertainty), and Maysir (gambling). In effect, the derivative instruments used for the management of market risks are not only disassociated from usurious debt transactions, they are also transacted in the financial markets in a manner that is transparent to all the parties involved. Along the same lines, the prohibition of Maysir, which is apparently an overarching concern, should be conceptualized with the focus on the proscription of the act of gambling, not necessarily the instruments (e.g., derivatives) and/or any particular framework (e.g., zero-sum arrangements). Ultimately, one should be cognizant of the fact that the true intentions of Islamic jurisprudence in Mua’amalat (as a manifestation of divine guidance) always centre on human well-being. Accordingly, the religious prohibitions are, in essence, within the realm of acts that adversely affect human well-being. This is a constant theme that is present throughout the thesis; and is one that exists at the heart of a wider aspiration of its adoption to a greater extent than is currently present in the Islamic finance discourse.

University of Macau / Faculty of Science and Technology. / Department of Civil and Environmental Engineering

This research examined the psychology of leadership with respect to Enterprise Risk Management (ERM). ERM a risk management process that has been developed to enable organizations to minimize internal and external risks and exploit opportunities for gain. Despite the prevalence of several ERM frameworks for various kinds of risk, their implementation has been at best, partially effective. Given that the implementation of ERM's is the responsibility of senior management / leaders of organizations, it was assumed that one of the reasons for the faulty ERM implementation may be attributed to poor leadership. The literature indicated that the psychology of leadership related to implementation of risk management programmes refers to the ability to make rational decisions under condition of risk and uncertainty and the ability to influence others in the organizations to adopt and develop a risk management culture. However, the elements of a psychology of leadership that would lead to effective ERM implementation have been largely ignored in the literature. The gap in the literature this research attempts to bridge. The abductive pragmatic approach was used using qualitative and quantitative methods and primary and secondary data. The analysis of the secondary data led to the formulation of a framework containing various psychological factors related to decision making, leadership style and organisational culture. Qualitative data was collected through semi-structured interviews with 42 respondents from private organisations operating in the Saudi oil and gas sector, whilst quantitative data were gathered from 100 respondents from private organisations operating across various sectors in Saudi Arabia. The analysis of primary data collected from the empirical survey and the information gathered from the literature review corroborated all the factors identified in relation to decision making, leadership style and organisational culture. The key factors found to impact psychology of decision making included risk perception, psychometric paradigms, bias, culture, gender, emotion, decision-making style, attitude and protective zones. The factors impacting psychology of creating organisational culture of risk included leadership style, development, communication and appetite for monitoring risk, the development of an ethical organisation, role identification, the transformational leadership style and facilitation of the emergence of champions at all levels of the organisational hierarchy. One of the key findings of this research highlighted the occurrence of bias or heuristics that can impede rational decision making under condition of risk and uncertainty. The most important of these include representation, availability and anchoring, which can lead individuals to overestimate or underestimate the consequences of their decisions, and make decisions that do not lead to the desired outcomes from occurring. Another finding is the corporate environment in Saudi Arabia related to risk management. It was found that women in Saudi Arabia are more risk averse than their male counterparts. Findings suggest that this is the outcome of social prescriptions related to the role of women and indicate that steps must be taken to break down cultural barriers that prevent female participation in decision-making processes. In this connection, it was also found that in Saudi Arabia there is low tolerance for uncertainty and ambiguity, high tolerance for hierarchy, that values the community over the individual and that is more masculine than feminine in its worldviews. All of these have resulted in a risk averse management culture in Saudi Arabian organizations. It was also found that it is the transactional leadership style that is better suited to risk management activity than authoritarian, individualistic or transactional leaders. These finding are relevant as they constitute a framework or model of ERM implementation that may be used by any organization that seeks to effectively implement ERM frameworks. The leaders of these organizations can use this framework to understand the mental processes that they undergo when they have to make rational decisions under condition of risk and uncertainty as also how to leverage various psychological factors in creating an organizational culture of risk. The key limitation of this research is that it does not conduct statistical tests to explore positive and significant links between the various dimensions of the psychology of risk leadership and the benefits of an effective ERM implementation. The recommendations aims to help improve ERM implementation in Saudi Arabia and a future research for those interested in investigating the influence the psychology of leadership on ERM in a context of a particular sector.

<p>The paper is devoted to the modern methods of Value-at-Risk calculation using different cases of Generalized Hyperbolic distribution and models for predicting volatility. In our research we use GARCH-M and Non-parametric volatility models and compare Value-at-Risk calculation depending on the distribution that is used. In the case of Non-parametric model corresponding windows are proved by the Cross Validation method. Furthermore in our work we consider adaption of the method to intraday data using ACD and UHF-GARCH models. The project involves also application of the developed methods to real financial data and comparable analysis of the obtained results.</p>

<p>Risk management focuses on adopting a systematic and consistent approach to manage all of the risks confronting an organization.With the emergence of world as a globe village, companies are diversifying their activities; result in the increase of risks. Besides the business core activities, the increased use of derivative products by both financial and non-financial institutions and recent events or scandals continue to demonstrate the need for enhanced standards and processes of control over risk. This is of greatest interest for multinational companies, insurance organizations, banks, securities houses and non-financial institutions given the extent of their business activities in derivative products.The objective of this thesis is to identify the role and importance of internal control system in good risk management practice with a particular emphasis on management structure and reporting system and in general with Principles of Corporate Governance and Risk Management. Our focus is on the China Aviation Oil Corporation Ltd., (CAO). We will draw attention to the regulatory environment and recent regulatory and supervisory developments with respect to risk management practice.To be able to fulfill the purpose of study, qualitative research method was considered, using an inductive approach of a single case study of China Aviation Oil Corporation Ltd., with company related research literature, Committee of Sponsoring Organization of the Treadway Commission and Fortis Bank as source of data.Based on the analysis, a number of observations were put forward in the conclusion. To begin with the strategy in relation to management structure and reporting system of CAO are employed after the company crisis for better control and reporting system. In addition, the role of information technology is considered in risk management. Meanwhile, the good governance and risk management according to Accounting Standards application in risk management system and corporate governance are included in the discussion. In attempt of entrepreneur risk management in the firm, we also discuss the role of Enterprise Risk Management on the organizational performance with different perspectives.</p>

This report adapts the application of a methodology known as Analytic Hierarchy Process (AHP) to upstream Exploration & Production (E&P) project evaluations for the oil and gas industry. The method can be used to simplify the process of decision making, specifically when several parameters or variables—mostly uncertainties or risk variables—are being considered for different investment options. This method has been used in a large number of applications in several research areas where evaluation and decision making is a key issue. It simplifies the considerations that the evaluators must be aware of to assign probability or certainty factors to the parameters by using a relative intensity scale. We apply the method to the quantification of the risk involved in typical upstream projects. Although a decision as large as investment in oil and gas projects can not be based solely on risk factors, it is true that the risk attitude of the investor will ultimately play a significant role. This method gathers all the possible factors that can affect a project at any stage and provides the user with a single number; it condenses all the considerations and preferences of the investor or decision maker and ranks the investment alternatives from a risk point of view. A typical problem confronted with E&P project assessment (as well as in many other industries) is that the criteria selected may be measured on different scales, such as dollar value, stock-tank barrels, standard cubic feet, units of area, and so on. Some might even be intangible for which no scales exist, such as financial environment, management problems, or social unsteadiness. Measures on different scales, obviously, can not be directly combined, and this is part of what makes an integral assessment of any project such a difficulty. It is up to the decision maker to put all these evaluations—which may be still in different or subjective scales—on an overall comparative basis. This is where the AHP becomes useful, by gathering criteria of different natures and dimensions, and putting them all together on a single scale, which is derived from the decisions maker’s preferences and risk attitude.

Risk management focuses on adopting a systematic and consistent approach to manage all of the risks confronting an organization.With the emergence of world as a globe village, companies are diversifying their activities; result in the increase of risks. Besides the business core activities, the increased use of derivative products by both financial and non-financial institutions and recent events or scandals continue to demonstrate the need for enhanced standards and processes of control over risk. This is of greatest interest for multinational companies, insurance organizations, banks, securities houses and non-financial institutions given the extent of their business activities in derivative products.The objective of this thesis is to identify the role and importance of internal control system in good risk management practice with a particular emphasis on management structure and reporting system and in general with Principles of Corporate Governance and Risk Management. Our focus is on the China Aviation Oil Corporation Ltd., (CAO). We will draw attention to the regulatory environment and recent regulatory and supervisory developments with respect to risk management practice.To be able to fulfill the purpose of study, qualitative research method was considered, using an inductive approach of a single case study of China Aviation Oil Corporation Ltd., with company related research literature, Committee of Sponsoring Organization of the Treadway Commission and Fortis Bank as source of data.Based on the analysis, a number of observations were put forward in the conclusion. To begin with the strategy in relation to management structure and reporting system of CAO are employed after the company crisis for better control and reporting system. In addition, the role of information technology is considered in risk management. Meanwhile, the good governance and risk management according to Accounting Standards application in risk management system and corporate governance are included in the discussion. In attempt of entrepreneur risk management in the firm, we also discuss the role of Enterprise Risk Management on the organizational performance with different perspectives.

The paper is devoted to the modern methods of Value-at-Risk calculation using different cases of Generalized Hyperbolic distribution and models for predicting volatility. In our research we use GARCH-M and Non-parametric volatility models and compare Value-at-Risk calculation depending on the distribution that is used. In the case of Non-parametric model corresponding windows are proved by the Cross Validation method. Furthermore in our work we consider adaption of the method to intraday data using ACD and UHF-GARCH models. The project involves also application of the developed methods to real financial data and comparable analysis of the obtained results.

This report adapts the application of a methodology known as Analytic Hierarchy Process (AHP) to upstream Exploration & Production (E&P) project evaluations for the oil and gas industry. The method can be used to simplify the process of decision making, specifically when several parameters or variables—mostly uncertainties or risk variables—are being considered for different investment options. This method has been used in a large number of applications in several research areas where evaluation and decision making is a key issue. It simplifies the considerations that the evaluators must be aware of to assign probability or certainty factors to the parameters by using a relative intensity scale. We apply the method to the quantification of the risk involved in typical upstream projects. Although a decision as large as investment in oil and gas projects can not be based solely on risk factors, it is true that the risk attitude of the investor will ultimately play a significant role. This method gathers all the possible factors that can affect a project at any stage and provides the user with a single number; it condenses all the considerations and preferences of the investor or decision maker and ranks the investment alternatives from a risk point of view. A typical problem confronted with E&P project assessment (as well as in many other industries) is that the criteria selected may be measured on different scales, such as dollar value, stock-tank barrels, standard cubic feet, units of area, and so on. Some might even be intangible for which no scales exist, such as financial environment, management problems, or social unsteadiness. Measures on different scales, obviously, can not be directly combined, and this is part of what makes an integral assessment of any project such a difficulty. It is up to the decision maker to put all these evaluations—which may be still in different or subjective scales—on an overall comparative basis. This is where the AHP becomes useful, by gathering criteria of different natures and dimensions, and putting them all together on a single scale, which is derived from the decisions maker’s preferences and risk attitude.