THE TEN COMMANDMENTS FOR OPTIMIZING VALUE-AT-RISK AND DAILY CAPITAL CHARGES

Abstract.  Credit risk is the most important type of risk in terms of monetary value. Another key risk measure is market risk, which is concerned with stocks and bonds, and related financial derivatives, as well as exchange rates and interest rates. This paper is concerned with market risk management and monitoring under the Basel II Accord, and presents Ten Commandments for optimizing value-at-risk (VaR) and daily capital charges, based on choosing wisely from (1) conditional, stochastic and realized volatility; (2) symmetry, asymmetry and leverage; (3) dynamic correlations and dynamic covariances; (4) single index and portfolio models; (5) parametric, semi-parametric and non-parametric models; (6) estimation, simulation and calibration of parameters; (7) assumptions, regularity conditions and statistical properties; (8) accuracy in calculating moments and forecasts; (9) optimizing threshold violations and economic benefits; and (10) optimizing private and public benefits of risk management. For practical purposes, it is found that the Basel II Accord would seem to encourage excessive risk taking at the expense of providing accurate measures and forecasts of risk and VaR.     

Financial reforms in Chinese banking: The impact on personal lending and operational efficiency

The Chinese financial system has historically been one of secrecy, distrust, and corruption. The process does not align with the western standards of transparency and auditing. In contrast to the transaction-based business culture of the West, Chinese business society is relationship-based (quanxi), which still seems to play a key role in the credit decision. With the growth of the emerging middle class, access to financial instruments such as credit cards, life insurance, stock purchases, and the like will play a greater role in the life of the Chinese consumer. Based on these forecasts, the authors recommend seven actions to manage financial activities in China, all of which are explored within this article.     

Estimating elasticities with frontier and other regressions in evaluating two advertising strategies for US Army recruiting

To help resolve a long-standing debate in the US Government on advertising strategies for military recruitment, this study applies ordinary least squares (OLS), which here includes (1) stochastic frontier analysis (SFA) and (2) frontierized least squares (FLS), to evaluate two distinct advertising strategies: Service Specific vs. Joint. Thus, in contrast to the customary use of a single central tendency method, such as OLS, on different models, we here use multiple methods on a single model to cross check and validate results. In addition to serving as cross checks, the methods can be used to identify classic problems, including biases in the data and shortcomings in one or more of the methodologies employed. To avoid dealing with problems on identifying motives underlying various patterns in advertising expenditure, data are drawn from a statistically designed experiment where the expenditures were controlled as part of the experiment to resolve the issue of a choice between the two advertising strategies of interest. In contrast to earlier studies, the current paper finds that all methods used lead to the same conclusion: Service Specific is more efficient than Joint, at least for the US Army—which is, by far, the largest military advertiser. Finally, the paper introduces a new method for reallocating advertising budgets between the Uniformed Services which (a) is simpler than the customary use of cross partial derivatives, (b) avoids the need for the ceteris paribus assumptions for each such allocation, as in customary reallocation methods and (c) simplifies matters so that, for instance, it is not necessary to introduce an entirely new organization to administer the desired coordinating activities.     

The global credit boom: Challenges for macroeconomics and policy

The recent financial crisis has put the spotlight on the rapid rise in credit which preceded it. In this paper, we provide an empirical and theoretical analysis of the credit boom and the macroeconomic context in which it developed. We find that the boom was unusually long and associated with neither particularly strong growth nor rising inflation in the economies in which it took place. We show that this type of credit and financial cycle is hard to reconcile with existing economic theory and argue that, while the “global savings glut” may account for the cycle's initial phase, other factors – such as the conduct of monetary policy and perceptions of declining macroeconomic risk – were more important from the mid-2000s onwards. We conclude by identifying some of the challenges now facing macroeconomics and policy.     

定价策略迷失：不只是简单降价

在经济低迷时期，由于需求下降、产能过剩和价格敏感度提高，各种因素都在共同推动产品价格走低，降价已经成了很多企业应对低迷的杀手锏。     

Regulierungsmöglichkeiten auf dem Markt für Online-Auktionen

Der deutsche Online-Auktionsanbieter eBay hat seit seiner Gründung seine Gebühren um ein Vielfaches erh?ht. Ist dies mit Kostensteigerungen zu begründen? Verh?lt sich eBay wie ein typischer natürlicher Monopolist auf einem schwer bestreitbaren Markt? Wie kann einer Marktkonzentration entgegengetreten werden? Wie k?nnte eine Regulierung des Marktes aussehen? Korbinian von Blanckenburg, 28, Dipl.-Volkswirt, ist wissenschaftlicher Mitarbeiter am Institut für Finanzwissenschaft der Westf?lischen Wilhelms-Universit?t Münster; Michael Michaelis, 31, ist Dipl.-Jurist.     

Innovation and the opportunity cost of monopoly

Innovation enables monopolists to lower their costs, expand their outputs, and reduce their prices. It is conventional to conclude that social welfare unambiguously increases as a result. Assuming linear demand and marginal cost, this paper shows, however, that innovation raises the opportunity cost of monopoly: as a firm enjoying market power becomes more efficient, greater amounts of surplus are sacrificed by consumers because of the progressive monopolist's failure to produce the new, larger competitive output. Innovation, in other words, increases the social value of competition by raising the deadweight cost of monopoly. Copyright © 2008 John Wiley & Sons, Ltd.     

The ten commandments of legal risk management

Effective legal risk management is not a separate field of endeavor. Rather, it is inextricably linked with good management and with ethical management; managers who behave professionally and according to ethically defensible principles of action are quite unlikely to find themselves and their organizations stuck in a legal and/or ethical quagmire. Behavioral decision theory offers some explanations for why those managers who go astray do so, but explaining how basic human tendencies, uncorrected, may incline us to questionable decisions is not to justify such decisions. Managers who follow the guidelines set forth in this article may nonetheless find themselves or their companies under assault in the law courts or the court of public opinion, but should such an unlikely event occur, they will be far more likely to be able to successfully defend themselves.     

Understanding Market-Driving Behavior: The Role of Entrepreneurship

In recent years, the marketing literature has placed significant emphasis on market-driving and proactive market-driven behavior within firms in attempts to reconceptualize the meaning of "market orientation." For their part, market-driving firms such as Starbucks, Amazon.com, Dell, and Southwest Airlines are demonstrating how business model innovation results in sustainable advantage and superior long-term performance in a wide range of industries. In this paper, we contend that market-driving behavior is distinct from a firm's market orientation, and instead is the essence of entrepreneurial action in the Schumpeterian "creative destruction" sense. It is further argued that the firm's entrepreneurial orientation interacts with other strategic orientations, in the process determining how they are manifested and, in some cases, whether they are manifested. Furthermore, entrepreneurial orientation plays a critical role in determining transitions among various strategic orientations over time. An integrative model illustrates the dynamics of the interface between marketing and entrepreneurship from both a content and process perspective. Two case studies illustrate how trajectories can be identified in the dominant strategic orientations within companies as they evolve.