Thesis (MSc)--Stellenbosch University, 2012. / ENGLISH ABSTRACT: The interest rates market has changed dramatically since the 2007 credit crunch with the explosion of basis spreads between rates of different tenors and currencies. Consequently, the classical replication of FRA rates with spot LIBOR rates is no longer valid. Moreover, the 2007 credit crunch yields a separation between the curve used for discounting and the forward or projection curves that estimate all future cash-fl ows. Another impact of the credit crunch in risk management is that market participants have started to give more importance to the difference between collateralized and uncollateralized trades. Nowadays, the wide spread use of collateral, especially in swap contracts, has made the overnight index swap (OIS) rate the appropriate benchmark for discounting collateralized trades. Inspired by the seminal works of Mercurio (2010a,b), Kijima et al. (2008), Fujii et al. (2011), Bianchetti (2010b), with the contributions of other authors, and motivated by the evolution of the interest rates market and models, this thesis examines a new framework that uses multiple-curves to value interest rate derivatives which is compatible with the current market practice. Firstly, we discuss the roots of the 2007 credit crunch and its serious consequences for pricing interest rate derivatives. We underscore the necessity of a multiple-curve pricing framework for interest rate derivatives. This is followed by a discussion on the importance of collateralization and OIS discounting in pricing Over-The-Counter (OTC) derivatives. The central part of the thesis discusses the modern theoretical framework and the practical implementation of the multiple curve pricing method. We present a bootstrapping algorithm used to construct and fit the multiple-yield curves to market prices of plainvanilla contracts. Secondly, starting with the single-currency economy, the extended version of the LIBOR Market Model, developed by Mercurio (2010a,b), which proposes a joint model of FRA rates, implied forward rates and their corresponding spread is investigated. Analogously, the extended version of short-rate model in a multiple-curve setup and in the presence of basis spread, proposed by Kijima et al. (2008), is presented and discussed. This work provides a detailed analysis of these extensions and the corresponding closed formulae for liquid products such as caps and swaptions. Finally, in the multiple-currencies case, the HJM model with stochastic basis spreads, introduced by Fujii et al. (2011), consistent with the foreign exchange and cross-currency swaps markets that includes the effect of collateralization is examined thoroughly. / AFRIKAANSE OPSOMMING: Die rentekoers mark het dramaties verander sedert die 2007 krediet krisis met 'n ontplo ng van basisverspreidings tussen koerse van verskillende looptye ("tenor") en geldeenhede. As gevolg, is die klassieke replikasie van FRA koerse met LIBOR sigkoerse nie langer geldig nie. Verder het die 2007 kredietkrisis 'n skeiding veroorsaak tussen die kromme wat gebruik word vir diskontering en die voorwaardse of vooruitskattings krommes wat toekomstige kontantvloei voorspel. 'n Verdere impak van die kredietkrisis in risikobestuur is dat mark deelnemers begin het om meer klem te lê op verskille tussen aangevulde en onaangevulde handel. Deesdae, met die algemene gebruik van kollaterale sekuriteit, veral in ruiltransaksiekontrakte, is die oornagse indeks ruiltransaksie (overnight index swap, OIS) koers die geskikte maatstaf om aangevulde handel te diskonteer. Geïnspireer deur die gedagteryke werk van Mercurio (2010a,b), Kijima et al. (2008), Fujii et al. (2011), Bianchetti (2010b), met bydrae van menige outeurs, en gemotiveer deur die evolusie van die rentekoers markte en modelle, ondersoek hierdie tesis 'n nuwe raamwerk wat multikrommes gebruik om rentekoers afgeleide effekte te waardeer wat versoenbaar is met die lopende mark praktyk. Eerstens, bespreek ons die oorsake van die 2007 kredietkrisis en die ernstige nagevolge vir die waardering van rentekoers afgeleide effekte. Ons beklemtoon die noodsaaklikheid van 'n multikromme waarderings raamwerk vir rentekoers afgeleide effekte. Dit word gevolg deur 'n bespreking oor die belangrikheid van aanvulling en OIS diskontering in die waardering van oor-die-toonbank (over-the-counter, OTC) effekte. Die teoretiese raamwerk en die praktiese implimentering van die multikromme waarderings metode word bespreek. Ons stel ook ten toon 'n skoenlus ("bootstrapping") algoritme wat gebruik kan word om meervoudige opbrengs krommes saam te stel en die dan te pas op mark pryse van vanielje kontrakte. Tweedens, met 'n enkel geldeenheid ekonomie as beginpunt, word die uitgebreide weergawe van die LIBOR Mark Model (ontwikkel deur Mercurio (2010a,b), wat 'n gesamentlike model van FRA koerse voorstel), geïmpliseerde termyn koerse en hul ooreenstemmende verspreiding bestudeer. Ooreenkomstig word die uitgebreide weergawe van die kort koers model in 'n multikromme opset en in die aanwesigheid van basisspreiding (voorgestel deur Kijima et al. (2008)) uiteengesit en bespreek. Hierdie werk verskaf 'n uitvoerige analise van hierdie uitbreidings en die ooreenstemmende geslote formules vir vloeibare produkte soos perke en ruiltransaksie opsies. Ten slotte, in die multi-geldeenheid geval, word die HJM model met stogastiese basisverspreiding (voorgestel deur Fujii et al. (2011)), nie-strydig met buitelandse valuta en kruisvaluta ruiltransaksie markte wat die effekte van aanvulling insluit word deuglik bestudeer.

In the first chapter, I analyze the impact of changes in aggregate holding in special asset purchase programs by Federal Reserve Systems (FED) as an alternate monetary policy at aggregate level. Later, to complement the analysis of monetary impact at aggregate level, I also analyze the impact of monetary actions at bank stock level with a set of 186 banks. First, for the overall sample period, expected monetary shock has positive effect on bank stock return; however, unexpected shock component has otherwise negative impact. Second, during both conventional and QE regime, monetary shocks are not significant in explaining weekly stock returns; however change in FED’s total asset holding in special programs is significant during the QE regime and such findings are more robust for the “large” banks when compared to “medium” and “small” banks. The second chapter presents the second essay that is one of the early studies to analyze whether either the changes in accounting standard or the changes in prudential regulatory regimes may affect the bank earning management in terms of Loan Loss Provisioning (LLP) systematically. Results suggest that, in general, bank managers use LLP as a tool for earning management for income smoothing and also for capital management once LLP is allowed to be a part of Tier-I capital requirement. Both changes in prudential regulation from pro-cyclic to a dynamic regime and convergence of accounting standard from rule-based to principle-based standards have significant negative fixed effects separately and jointly once included.

M.A. / The objective of this thesis was to discuss capital account liberalization and banking crises in emerging markets, against the backdrop of the Asian financial crisis in 1997. This was discussed with an underlying objective of evaluating the soundness of the South African banking system. The basis of this thesis was that a sound banking system coupled with good macroeconomic policies would make South Africa less vulnerable to global financial volatility. On the East Asian financial crisis, we found that the main cause of this crisis was the lack of prudent lending practices by most banking institutions. Lending practices were largely shaped by institutionalized corruption. Bad lending practices originated from connected lending as banks were owned and had strong links with big family conglomerates. These conglomerates were highly leveraged with very low profit margins and survived on cross-subsidization. As a result, they could not service their debts, resulting in large bad debts and non-performing loans in the banking systems. These non-performing loans and debt defaults had significant negative effects on banks' profitability and business survival, as they eroded earnings and shot up credit exposure. Furthermore, we also found that governments' political influence in the lending system and weak macroeconomic management (large current account deficits, fixed exchange rates and expansionary fiscal policies) contributed significantly to the East Asian financial fragility. Against this background, we recommend that emerging markets that want to liberalize their capital accounts should ensure that sound banking systems are properly entrenched. When financial systems are not strong, emerging countries would be exposed to imprudent credit risk assessments by banking institutions, resulting in nonperforming loans and collapse of those banking institutions. Secondly, our view is that emerging markets should pursue and adhere to the core banking principles of the Basel Committee on Banking Supervision. The objective of these principles is to ensure that banks operate profitably and have good business frameworks. The Basel Committee requires commercial banks to have solid and efficient supervision departments, with strong intentions of evaluating credit risks associated with loans and advances. Furthermore, central banks or any other custodians of banking institutions should have capital adequacy requirements in order to protect depositors and investors against any unforeseen liquidity pressures. From this thesis, we found that the South African banking system is sound. The low level of non-performing loans in the domestic banking system is indicative of prudent credit risk management. Even with prime interest rates at an all time high of 25% in late 1998, most banks managed to escape large non-performing loans, especially from the corporate sector. The brunt was mostly felt in the small business sector and household debt category. The South African Reserve Bank's Supervision Department sets out stringent guidelines with regard to the lending practices of banks. Banks are not allowed to overexpose themselves to particular clients, as was the case in East Asia. This also extends to deposits. Banks are not allowed to take deposits above 25% from a single source. The objective is to guard against liquidity pressures that could occur when that particular depositor withdraws the funding.

This thesis describes the actual global financial crisis and its impact on the company Kordárna, a.s, which is a producer of cords for tyres. The first part explains reasons and impacts of the global financial crisis. The second part is focused on a financial analysis of the company. The third part is connecting both previous parts, analyses consequences of the crisis on the company and its further problems, and shows how to solve its difficulties through the reorganization.

The thesis is focused on financial derivatives, their types, development and practical application. The first chapter deals with the definition of derivatives and description of basic types of derivatives and exotic options. The second chapter describes the development of derivatives in Czech Republic in comparison with G10 countries. In the continuous process of derivative products innovation credit, inflation derivatives and derivatives for electricity and weather are developed. The third chapter presents the derivatives in terms of practical application in the form of option structures, which are used for hedging against the currency risk. The structures are applied to the exchange rate development during the financial crisis period and their impact on businesses is analyzed. Then the hedge efficiency of the structures is analyzed due to use of hedge accounting

The thesis examines potential sources of currency crisis, banking crisis and twin crisis in a region of Central Europe, Eastern Europe, South-Eastern Europe and Baltics. The text assumes some basic knowledge of the theories of financial crisis and, thus, ommits some relevant details in the theoretical parts. The thesis aids at fading variables, which could signal vurnerability of a country to a curency, banking and twin crisis. In the second chapter we introduce a financial crisis typology. The text also briefly shows the theoretical and empirical studies of the financial crisis and introduces definitions of currency, banking and twin crisis. In the third chapter we identify the periods of financial crisis in the given region. Then we introduce the explanatory variables. In the fourth chapter we estimate logit model to explain the conditional probability of all the three types of financial crisis. In the fifth chapter we estimate the out-of-sample conditional probability of occurring crisis. In the end we discuss the results and possible recommendation for economic policy or investors. We find that some macroeconomic variables are significant when explaining financial crisis. For all three types of financial crisis these variables were significant: Share of total foreign debt to foreign reserves, interest rate differential, excessive credit expansion (its share to GDP).

Research paper for the degree of Master of Management in Finance & Investment / With a globalised system, the credit crunch of 2007/2008 rippled through the global economy quickly and turned a global financial crisis into a global economic crisis, vulnerabilities in the economy surfaced when it hit and these still continue to plague South Africa today. According to the World Bank, South Africa’s real GDP growth estimates are 0.8% in 2016/2017 and 1.1% in 2017/2018. Increasing uncertainty in global financial markets and banking systems, sharp declines in commodity prices, subdued global trade, currency pressure, as well as domestic constraints such as a current account deficit, a negative inflation outlook and high levels of unemployment, lead to increased financial stress in South Africa making the country more vulnerable in the event of an adverse scenario. Clearly, being cognizant of determinants of financial stress in South Africa is of paramount importance to policy makers as it allows them to assess potential risks to financial system stability and to consider timely and appropriate counteractions while maintaining a financial system that is resilient to systemic shocks. (South African Reserve Bank Financial Stability Review, 2016) This study aims to construct a financial stress index using Principal Component Analysis to identify key determinants of financial stress in South Africa. Several variables that have been identified in standing literature as being able to capture certain symptoms of financial strain in emerging market economies are estimated then aggregated into an index using the principal component analysis method. The usefulness of the index in identifying past crises is then assessed, moreover its performance is contrasted against the financial stress index constructed by South African Reserve Bank as well as against a South African composite business cycle leading indicator. Finally, the ability of the index to predict economic activity is examined. / MT2017

O nível de risco sistêmico no sistema financeiro tem sido objeto de constante preocupação no âmbito de organismos internacionais e autoridades de supervisão. As crises financeiras ocorridas em países da América Latina, do Sudeste Asiático, na Rússia, e em diversos outros, causaram vultosos prejuízos econômicos e custos sociais elevados. As pesquisas referentes ao assunto têm buscado encontrar características comuns que possam sinalizar antecipadamente a proximidade dessas crises. Até o momento, as variáveis utilizadas são de natureza econômica, como reservas internacionais, taxa de câmbio e endividamento externo de curto prazo. Frente a essa constatação, este estudo buscou mensurar o nível de risco sistêmico no setor bancário com a utilização de variáveis contábeis e econômicas. Por meio das variáveis econômicas, relativas às taxas de juros e de câmbio, e das variáveis contábeis, representativas da qualidade do crédito e da liquidez, foi possível construir indicadores de riscos que, juntamente com outros de natureza puramente contábil, foram submetidos à análise de regressão logística, a fim de verificar a significância estatística desses indicadores, bem como a existência de modelos capazes de aferir a probabilidade de determinado sistema bancário ser classificado como suscetível ou não à ocorrência de crise. Os resultados alcançados revelaram a existência de indicadores contábeis e de riscos capazes de discriminar os sistemas bancários dos países componentes da amostra pelo nível de risco. As variáveis contábeis e econômicas mais associadas à ocorrência de crises são relacionadas com a qualidade dos créditos, o volume de resultados e o nível de taxa de juros. Todos os indicadores construídos com base nessas variáveis foram identificados como relevantes no processo de classificação, destacando-se os relacionados à volatilidade da inadimplência, à volatilidade da rentabilidade e à volatilidade da taxa de juros, assim como à média da rentabilidade e à média do risco de crédito. Corroborando essa evidência, as equações compostas pelos indicadores citados apresentaram percentuais de acerto nas classificações superiores a 90%. Adicionalmente à correta separação dos grupos, as classificações dos países foram ponderadas pelo índice de risco sistêmico (IRS), que expressa a probabilidade de pertencer a determinado grupo. O ordenamento dos países pelo grau de risco sistêmico no setor bancário fornece parâmetro de comparação significativo para a tomada de decisão calibrada à exigência de cada situação. Por meio dele, é possível saber qual país apresenta maior ou menor risco sistêmico. Além disso, o acompanhamento dos IRS de um país no tempo expõe as tendências e os pontos críticos, os quais servem de subsídios à atuação das autoridades responsáveis pela estabilidade e funcionamento do sistema, tanto do país em foco como dos países relacionados. / The systemic risk in the financial system has been a constant concern for the international institutions and supervisory authorities. The financial crises occurred in Latin America, Southeast Asia, Russia, and other countries, have caused significant economic damages and high social costs. The related researches have tried to find common characteristics able to early warn the proximity of crises. Up to now, the variables that have been used come from economic features, like international reserves, foreign exchange rate, and external debt. Considering the high correlation between the financial system and the economic health, the objective of this study is to measure the systemic risk of the banking system, utilizing accounting and economic variables together. Through the volatilities of economic variables, like interest rate and foreign exchange rate, and accounting variables, representatives of credit quality and liquidity, it was possible to build indicators comprising risk factors. These indicators, added to simple accounting indicators, were submitted to logistic regression analysis, in order to test the statistic significance of them, and to verify the existence of a model to evaluate the probability of any banking system be classified as susceptible, or not, to financial crises. The results exposed the existence of accounting and risk indicators capable to discriminate banking systems according to the risk level. The accounting and economic variables most associated to financial crises are related to credit quality, earnings, and interest rate level. All of indicators composed by these variables showed to be relevant in the classification process, highlighting those related to the volatility of non-performing loans, profitability, and interest rate, as well those representatives of the profitability and credit risk means. Confirming that, the equations resulted in correct classification above 90%. In addition to the correct segregation between groups, the countries classifications were weighted by the systemic risk index (IRS), which expresses the probability to become to each group. The classification of countries by the level of systemic risk provides parameters for comparison of situations and to take actions adjusted to the severity of each one. Through these indexes (IRS), it is possible to recognize which country has more or less systemic risk, and to monitor trends and critical points, which are so important to the authorities responsible for the financial system stability.

University of Macau / Faculty of Social Sciences and Humanities. / Department of Government and Public Administration

The present study proposes a model, termed the hybrid model, to explain fiscal-policy responses to financial crises. Although it is applied throughout the present study to the Eurozone, the model’s geographic and substantive scope apply more broadly. Combining and building upon past approaches, the hybrid model proposes three independent variables: partisanship, political capacity, and external actors. The model builds on the literature’s three dominant approaches: partisan, domestic approaches; approaches that emphasize convergence; and approaches that emphasize divergence, represented here primarily by the Varieties of Capitalism (VoC) literature. The hybrid model integrates the domestic emphasis of the partisan approach with the international emphases of the convergence and, to some extent, VoC approaches. The hybrid model builds on the domestic politics of the partisan approach by integrating coalition logic and the tension between coalition partners into the partisan approach’s political landscape. The model also advances the convergence and VoC approaches by providing an explanation for variation in the pressure of financial markets, both over time and across countries, which mediates the influence of external actors in the domestic affairs of sample countries. In addition, with respect to the dependent variable, the present study develops a disaggregated measure that accounts for the diverse distributional implications of fiscal policies’ various dimensions. With respect to empirics, the present study employs a combination of quantitative and qualitative methods. Broadly, the large-N results provide support for the hybrid model, particularly as it pertains to partisanship. Event analyses and case studies support the role of external actors; the empirics show the degree to which financial-market pressure mediates the influence of external actors. Combined, the quantitative and qualitative approaches indicate problems with consonance, the particular dimension of political capacity considered in the present study. Both quantitative and qualitative results reveal that consonance, i.e., between-party tensions in coalition governments, provides an incomplete characterization of the factors influencing the political capacity of single-party and coalition governments. The case studies suggest that within-party tensions and party-system strength, as additional measures of political capacity, play key roles in shaping fiscal-policy responses. The empirics also confirm the importance of disaggregating fiscal policy, the dependent variable, beyond the broad measures of fiscal deficit, expenditure, and revenue adopted in the present literature.