A guaranteed minimum income benefit (GMIB) is a long-dated option that can be embedded in a deferred variable annuity. The GMIB is attractive because, for policyholders who plan to annuitize, it offers protection against poor market performance during the accumulation phase, and adverse interest rate experience at annuitization. The GMIB also provides an upside equity guarantee that resembles the benefit provided by a lookback option. We price the GMIB, and determine the fair fee rate that should be charged. Due to the long dated nature of the option, conventional hedging methods, such as delta hedging, will only be partially successful. Therefore, we are motivated to find alternative hedging methods which are practicable for long-dated options. First, we measure the effectiveness of static hedging strategies for the GMIB. Static hedging portfolios are constructed based on minimizing the Conditional Tail Expectation of the hedging loss distribution, or minimizing the mean squared hedging loss. Next, we measure the performance of semi-static hedging strategies for the GMIB. We present a practical method for testing semi-static strategies applied to long term options, which employs nested Monte Carlo simulations and standard optimization methods. The semi-static strategies involve periodically rebalancing the hedging portfolio at certain time intervals during the accumulation phase, such that, at the option maturity date, the hedging portfolio payoff is equal to or exceeds the option value, subject to an acceptable level of risk. While we focus on the GMIB as a case study, the methods we utilize are extendable to other types of long-dated options with similar features.

Originally presented as the author's doctoral Thesis (Universität, St. Gallen, 2006). / Includes bibliographical references.

Originally presented as the author's doctoral Thesis (Universität, St. Gallen, 2006). / Includes bibliographical references.

Credit risk mitigation that can be applied by commercial banks in assessing the lending decision /credit risk when advances and equity investments are considered for BEE classified companies. / A research report presented to the Graduate School of Business Leadership, University of South Africa / The previous political dispensation limited black people’s participation in the South African economy. Poor credit records, lack of training, resulting in skills and capacity gaps further limited entry into the lending market. These aspects are considered the main limitations in obtaining finance for the Small, Medium and Micro Enterprises (SMMEs). This research report focuses on how credit risk can be mitigated by commercial banks in lending to Black Economic Empowerment (BEE) companies in the medium to large market. Exploratory research was conducted using various methods to achieve methodological triangulation. These methods consisted of a literature review, interviewing experts in the field and case studies. A qualitative research approach was followed. It was found that the lack of own contribution and security were still prevalent in the medium to large market, but the quality of management (little training and skills) was deemed not to be a limitation as suitable credit risk mitigants were identified. No credit risk mitigants were identified to mitigate poor credit records. It is postulated that by adopting and applying the identified credit risk mitigants, commercial banks can increase their success rate in lending to BEE companies. It will further assist in the transformation of black people and compliance with the Financial Services Charter. It is recommended that a similar study be conducted in the agriculture, hunting, forestry and fishing industry. The reasons why BEE companies applications are declined could also be investigated. Further studies could also explore other external factors such as economical, legal and social that could have an influence on the funding of BEE companies.

The objective of the study is to establish a perspective of risk management by doing an assessment of current risk management practices, especially in the aftermath of the 2008/2009 global financial crisis. Risk management, as a component of corporate governance, was analysed by addressing the following: - The nature of value-creating assets in business; - The primary challenges for risk management over the next three years; - The changing approaches towards risk management; - The role of legislation and external stakeholders; - The role of risk management in strategic planning; - The cost of risk management; and - The benefits of improved risk management capabilities. A survey was conducted in the form of a questionnaire in order to obtain primary information from business owners on the current role of risk management in their organisations as well as their view on the role of risk management going forward. Businesses operating in the Port Elizabeth and surrounding area with an existing relationship with Absa Business Banking Services participated in the study. Quantitative techniques were used to analyse the data that were obtained from the sample group. The study revealed that the role of risk management in enterprises is evolving into an integrated, enterprise wide risk management function that can be utilised as a source of competitive advantage, from both a funding perspective for Banks and a business perspective for business owners. Capitalising on risk management as a competitive advantage will ultimately lead to long term sustainability and profitability of South African business enterprises and the South African Banking system.

La presente tesi si concentra sull’incertezza e sulla sua relazione con il rischio finanziario, due importanti concetti in economia e finanza. Il primo capitolo propone un approccio analitico in grado di separare gli shock connessi all’incertezza finanziaria dagli shock legati all’incertezze politiche, utilizzando un campione di paesi appartenti all’area Euro, dove la diffusione di shock da un paese all’altro (effetti di spillover) rendono l’identificazione più complessa. I risultati indicano che la BCE favorisce adottare una condotta proattiva verso gli shock di incertezza politica, e una più passiva verso gli shock di incertezza finanziaria. Il secondo capitolo discute il trade-off tra accuratezza della previsione e velocità di reazione che consente agli hedge fund di incrementare i profitti durante periodi caratterizzati da elevata incertezza. In questo capitolo si propone un metodo matematico per l’analisi di tale trade-off utilizzando un approccio Bayesiano. I risultati empirici e le simulazioni effettuate indicano che previsioni meno accurate sono associate ad aumenti di velocità. Infine, il terzo capitolo analizza alcune problematiche inerenti alla transizione ad un’economia a basso impatto ambientale, tenendo conto che la presenza di incertezza e asimmetrie informative potrebbero amplificare o limitare i pregiudizi comportamentali degli investitori. / This thesis focuses on broader or Knightian uncertainty and its relation with financial uncertainty or risk, given the overlaps existing between these two important concepts in the economics and finance literature. The first chapter adds to the existing stock of analytical methods able to disentangle financial from policy-related uncertainty shocks within a sample of Euro Area countries, where cross-border spill-overs can raise identification challenges. In terms of policy reactions, the results point to ECB having adopted a pro-active stance towards policy uncertainty shocks, but a more passive or accommodative stance towards financial uncertainty shocks. The second chapter discusses the trade-off between prediction accuracy and reaction speed that allows hedge funds to better time the market and profit during periods of turmoil and high uncertainty. It proposes a mathematical formulation of the trade-off that casts the decision-making process in a Bayesian framework. The empirical results, pointing to speed gains associated with less accurate predictions, are justified in a simulation exercise. The third chapter discusses some challenges arising from the ongoing transition to a low-carbon economy in a market context dominated by multiple uncertainty sources and information frictions that can either amplify or reduce investors’ own behavioural biases.

Purpose: The aim of this thesis is to investigate whether there is an established investment process for small Swedish service companies, and to what extent they take financial risk into account when making investment decisions.  Theory: The theoretical frame of reference derives from previous research and theories of investment classification, investment processes and risk management in connection with investments.  Method and implementation: The study is based on a qualitative approach through semi-structured interviews with six knowledge-based service companies where the respondents hold positions within company management. A supplementary quantitative method from the companies’ annual reports has been implemented. All the companies surveyed are small Swedish service companies.  Conclusion: The result shows that there is an investment process in all the companies surveyed, though it differs between them. The investments are relevant with the companies’ business strategies. All the companies surveyed take great account of financial risk in investment decisions, mainly by caring for staff in order to retain the human capital in the company. / Syfte: Studien syftar till att undersöka om det finns en fastställd investeringsprocess för småsvenska tjänsteföretag, samt hur och till vilken grad de tar hänsyn till finansiell risk vid investeringsbeslut. Teori: Den teoretiska referensramen härrör tidigare forskning och teorier om investeringsklassificering, investeringsprocesser och riskhantering i samband med investeringar. Metod och genomförande: Studien utgår utifrån ett kvalitativt tillvägagångssätt genom semistrukturerade intervjuer med sex kunskapsbaserade tjänsteföretag där respondenterna innehar positioner inom företagsledningen. En kompletterande kvantitativ datainsamlingsmetod från företagens årsredovisningar har genomförts. Samtliga undersökta företag är små svenska tjänsteföretag med huvudsäte i Stockholm. Slutsats: Studien finner att det i samtliga undersökta företag finns en investeringsprocess, men att den skiljer sig åt mellan företagen. Investeringarna går i linje med företagens verksamhetsstrategi. Samtliga undersökta företag tar stor hänsyn till finansiell risk vid investeringsbeslut, främst genom att vårda personal för att behålla humankapitalet i företaget.

This study investigates the effect of leverage on stock returns on Swedishlisted firms (Large and Mid-cap). Stock returns have been calculated, andleverage ratios have been collected through Datastream. The results contradictfundamental theories on capital structure. According to the fundamentaltheories there should be a positive relationship, but the result of this studysuggests that the relationship is negative.

This thesis gives an example of assessing the risk of a financial portfolio with international assets, where the assets may be of different classes, by the use of Monte Carlo simulation and Extreme Value Theory. The simulation uses univariate modelling, models of the assets’ returns as stochastic processes, as well as vine copulas to create dependency between the variables. For the asset returns a modified version of a discretized Merton jump diffusion model was used. The risk assessment used Extreme Value Theory to calculate Value at Risk and Expected Shortfall of the simulated portfolio. However, the resulting return distribution, and the risk assessment thereof, was not entirely satisfactory due to unreasonably large values ascertained. / Denna uppsats ger ett exempel på hur riskbedömning av finanisella portföljer med internationella tillgångar av olika tillgångsslag genom Monte Carlo simulering och extremvärdesteori. Simuleringen använder univariat modelling, modeller för tillgångarnas avkastningar som stokastiska processer, såväl som vine-copulas för att skapa ett beroende mellan tillgångarna. Tillgångarnas avkastningar modellerades med en modifierad version av en diskretiserad Merton-jump-diffusion model. Riskbedömningen använde extremvärdesteori för att beräkna Value-at-Risk och Expected-Shortfall. Dock blev den resulterande avkastningsfördelningen och riskbedömningen därav inte helt tillfredsällande på grund av att orimligt stora värden erhölls.

Despite the growing body of research in related disciplines, including economics, management, politics, psychology, and sociology, marketing research has largely overlooked the downstream consequences of economic inequality, despite its undeniable impact on individuals' consumption decisions and experiences. This dissertation endeavors to bridge this knowledge gap by uncovering two novel consumer consequences of economic inequality. To accomplish this, it draws upon a diverse range of data sources, including individual-level experimental and survey data, as well as aggregate-level transaction and census data. Additionally, it examines economic inequality across multiple levels, encompassing communities, counties, states, and countries, and operationalizes it both as objective and perceived economic inequality. In Essay 1, I investigate how economic inequality in a consumer's region affects their access to peer-to-peer (P2P) services. Across diverse types of P2P services, I find convergent evidence that increased economic inequality in a consumer's region reduces providers' willingness to serve them, ultimately resulting in their diminished access to P2P services. This adverse effect of economic inequality can be attributed to providers perceiving consumers from more unequal regions as less trustworthy. This perception leads them to perceive heightened financial risks associated with serving these consumers. Moreover, this negative impact of economic inequality attenuates when providers perceive greater interpersonal similarity with consumers from unequal regions. In Essay 2, I explore how economic inequality within one's society affects their education decisions through the lens of perceived education premium. Firstly, it encourages people to attend college as it amplifies the perceived education premium of college—the income gap between college graduates and high school graduates. Secondly, it motivates people to choose majors with higher earning potential but lower personal interests, as opposed to those that align more with their genuine interests but pay less. This shift towards prioritizing extrinsic motivations over intrinsic ones is driven by people's perception of a more significant education premium between majors—the income disparity between higher-paying and lower-paying majors. / Doctor of Philosophy / Economic inequality, defined as the unequal distribution of income among various groups in a society, has been on the rise globally in recent decades. Amid the growing economic inequality, researchers have been delving into its profound impacts on individuals across diverse domains, exploring its influences on their mindsets, perspectives on the world, social lives, and overall well-being. It's surprising that there has been relatively little research on how economic inequality affects people's consumption decisions and experiences, given its undeniable influence on them. In this dissertation, I explore the impacts of economic inequality on consumers' access to P2P services and education decision-making. In Essay 1, I investigate how economic inequality in a consumer's region affects their access to peer-to-peer (P2P) services. I examine whether P2P providers are equally willing to serve consumers from regions with varying levels of economic inequality. I reveal a disconcerting reality: providers are less willing to offer P2P services to consumers from more unequal regions, driven by the perception of these consumers as less trustworthy and posing a higher financial risk. These differing attitudes ultimately lead to reduced access to P2P services and region-based discrimination for consumers from regions characterized by higher economic inequality. Fortunately, these adverse outcomes can be mitigated by an increase in perceived interpersonal similarity between providers and consumers. In Essay 2, I investigate how economic inequality in one's society shapes their education decisions. I find that as economic inequality rises, people become more willing to pursue a college education because they perceive a wider income gap between well-educated individuals and those with lower levels of education. Besides college decisions, economic inequality also influences people's choice of major for a similar reason. In a society characterized by greater economic inequality, people gravitate towards majors that promise higher earning potential, even if these fields do not align closely with their personal interests. This preference is driven by their perception of a greater wage difference between higher- and lower-paying majors. These findings provide policy implications for several pressing challenges in higher education.