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Climate stress test: bad (or good) news for the market? An event study analisys on euro zone banks
IF 0.8
Annals of Finance Pub Date : 2024-12-30 DOI: 10.1007/s10436-024-00459-0
Costanza Torricelli, Chiara Pederzoli, Fabio Ferrari
{"title":"Climate stress test: bad (or good) news for the market? An event study analisys on euro zone banks","authors":"Costanza Torricelli,&nbsp;Chiara Pederzoli,&nbsp;Fabio Ferrari","doi":"10.1007/s10436-024-00459-0","DOIUrl":"10.1007/s10436-024-00459-0","url":null,"abstract":"<div><p>This paper investigates how the 2021 ECB Climate stress test affected the market view on the climate risk exposure of the banking sector. To this end, we set up an event study analysis on stock returns of the banks included in the exercise, whereby at the relevant dates we test for the existence of abnormal returns. The potential hypothesis is that bad/good news on climate risks exposure of banks may negatively/positively impacts their profitability and hence stock returns. Three main results emerge from our analyses. First, the stress test announcement had no significant impact on banks stock returns, a result that can be explained by the type of information given, i.e. only the methodology and some preliminary mainly qualitative evidence. Second, and by contrast, the publication of the final results with quantitative details determined a positive significant reaction, since the market possibly expected banks’ exposure to climate risks to be greater. Third, an event related to the worldwide consensus on the need to manage climate change (COP26), yet not strictly related to the climate stress test, had no significant market impact. Our results, which are robust to various checks, may have policy implications for future climate stress tests and institutional initiatives needed to manage climate risk.</p></div>","PeriodicalId":45289,"journal":{"name":"Annals of Finance","volume":"21 1","pages":"1 - 17"},"PeriodicalIF":0.8,"publicationDate":"2024-12-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143632449","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
The (un)secured debt puzzle: evidence for U.S. public firms
IF 0.8
Annals of Finance Pub Date : 2024-12-21 DOI: 10.1007/s10436-024-00457-2
Kizkitza Biguri
{"title":"The (un)secured debt puzzle: evidence for U.S. public firms","authors":"Kizkitza Biguri","doi":"10.1007/s10436-024-00457-2","DOIUrl":"10.1007/s10436-024-00457-2","url":null,"abstract":"<div><p>Collateral availability determines secured debt, while creditworthiness determines unsecured debt. Both are relevant for the debt structure. Regardless of the benefits that pledging collateral may offer, firms substitute away from secured debt as financial constraints relax. An increase in the share of unsecured debt leads to an increase in investment. A higher investment and the preference for unsecured debt can be explained by firms’ desire to minimize financing costs, spreads on unsecured debt are on average lower. This novel evidence complements existing literature on the collateral channel.</p></div>","PeriodicalId":45289,"journal":{"name":"Annals of Finance","volume":"21 1","pages":"19 - 44"},"PeriodicalIF":0.8,"publicationDate":"2024-12-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://link.springer.com/content/pdf/10.1007/s10436-024-00457-2.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143632361","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
No arbitrage for a special class of filtration expansions
IF 0.8
Annals of Finance Pub Date : 2024-12-15 DOI: 10.1007/s10436-024-00458-1
Karen Grigorian, Robert A. Jarrow
{"title":"No arbitrage for a special class of filtration expansions","authors":"Karen Grigorian,&nbsp;Robert A. Jarrow","doi":"10.1007/s10436-024-00458-1","DOIUrl":"10.1007/s10436-024-00458-1","url":null,"abstract":"<div><p>This paper provides a set of sufficient conditions for special classes of filtration expansions, such that the expanded information introduces no new arbitrage opportunities into a market. The information expansion corresponds to knowledge of the “true” price process. The theorem is based on comparing two distinct markets—the original and a fictitious—each associated with a different filtration, and employs the first fundamental theorem of asset pricing in both of these two markets.</p></div>","PeriodicalId":45289,"journal":{"name":"Annals of Finance","volume":"21 1","pages":"45 - 68"},"PeriodicalIF":0.8,"publicationDate":"2024-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143632428","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Probability of no default for a microloan under uncertainty 不确定情况下小额贷款无违约的概率
IF 0.8
Annals of Finance Pub Date : 2024-09-27 DOI: 10.1007/s10436-024-00455-4
Perpetual Andam Boiquaye, Philip Protter
{"title":"Probability of no default for a microloan under uncertainty","authors":"Perpetual Andam Boiquaye,&nbsp;Philip Protter","doi":"10.1007/s10436-024-00455-4","DOIUrl":"10.1007/s10436-024-00455-4","url":null,"abstract":"<div><p>Microloans are important to the underprivileged. It helps those in need make ends meet and maintain daily activities. While not yet a life-changing tool, it can significantly impact women’s empowerment in rural areas worldwide. This is a cost-effective method of assisting those in need. The unpredictable behavior of both borrowers and lenders is a major worry in microlending. Especially in terms of borrowers repaying their debts with interest and lenders remaining economically feasible. To accomplish this, we develop a model that explains the wealth dynamics of women selling inexpensive goods from baskets on their heads while incorporating uncertainty. We use a mathematical approach to estimate the probability of no default. We demonstrate that the lender should charge an interest rate based on the lending cost while taking into account the drift and the business’s uncertainties. This will allow them to repay their loan with interest without defaulting, as well as make lending more sustainable.</p></div>","PeriodicalId":45289,"journal":{"name":"Annals of Finance","volume":"20 4","pages":"521 - 528"},"PeriodicalIF":0.8,"publicationDate":"2024-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142636914","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Approximation and asymptotics in the superhedging problem for binary options 二元期权超级对冲问题中的近似和渐近问题
IF 0.8
Annals of Finance Pub Date : 2024-09-27 DOI: 10.1007/s10436-024-00454-5
Sergey Smirnov, Dimitri Sotnikov, Andrey Zanochkin
{"title":"Approximation and asymptotics in the superhedging problem for binary options","authors":"Sergey Smirnov,&nbsp;Dimitri Sotnikov,&nbsp;Andrey Zanochkin","doi":"10.1007/s10436-024-00454-5","DOIUrl":"10.1007/s10436-024-00454-5","url":null,"abstract":"<div><p>This paper considers Kolokoltsov’s multiplicative model of market price dynamics witout trading constraints. Under general assumptions and monotonic payoff functions, we show that the guaranteed deterministic approach, having a game-theoretic interpretation, yields the same result in the superhedging problem as in the probabilistic approach. We analyze in detail the superhedging problem for a special monotonic payoff function, i.e., a European-style binary option, within the guaranteed deterministic approach (GDA). Unlike the probabilistic counterpart, GDA allows a direct description of the most unfavorable mixed market strategy. We obtain some interesting analytical properties of the solutions of the corresponding Bellman–Isaacs equations, providing the minimal required reserves (also called the superhedging price) to cover the option payoff at the expiration time. The price process with the conditional distributions corresponding to the most unfavorable market scenarios can be approximated on a logarithmic scale by a random walk with two absorbing barriers. We also prove that, under an appropriate normalization, the price process weakly converges to the geometric Brownian motion with one absorbing barrier at the strike price when the discrete-time model number of steps tends to infinity.</p></div>","PeriodicalId":45289,"journal":{"name":"Annals of Finance","volume":"20 4","pages":"421 - 458"},"PeriodicalIF":0.8,"publicationDate":"2024-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142636913","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
On the real rate of interest in a closed economy 关于封闭经济中的实际利率
IF 0.8
Annals of Finance Pub Date : 2024-09-12 DOI: 10.1007/s10436-024-00451-8
Dilip B. Madan, King Wang
{"title":"On the real rate of interest in a closed economy","authors":"Dilip B. Madan,&nbsp;King Wang","doi":"10.1007/s10436-024-00451-8","DOIUrl":"10.1007/s10436-024-00451-8","url":null,"abstract":"<div><p>It is argued that socially optimal real rates of interest cannot be positive in a stationary state. Most economies approximating a stationary state have real rates of interest depending on the interplay between utility and production functions and the structure of the exact social objective function being maximized. The objective studied here maximizes a probability distorted expectation of the sum of undiscounted utilities. The utility functions studied display constant and declining relative risk aversion coefficients. The production functions are Cobb–Douglas, asymptotically linear versions of the same and those with a declining elasticity of the marginal productivity of capital. It is observed that declining relative risk aversion utilities coupled with asymptotically linear Cobb–Douglas type production functions can deliver real rates observed in the US economy over the period January 2010, to December 2023. An analysis of income inequality considerations shows that for the economies studied there is a positive relationship between the real return on capital and the share of capital income in total income. These results support the thesis advanced by as reported by Piketty (Capital in the Twenty First Century. Harvard Business School, Cambridge, 2014)</p></div>","PeriodicalId":45289,"journal":{"name":"Annals of Finance","volume":"20 4","pages":"459 - 477"},"PeriodicalIF":0.8,"publicationDate":"2024-09-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142198553","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
A Girsanov transformed Clark-Ocone-Haussmann type formula for (L^1)-pure jump additive processes and its application to portfolio optimization 用于 $$L^1$$ 纯跃迁加法过程的 Girsanov 变换 Clark-Ocone-Haussmann 型公式及其在投资组合优化中的应用
IF 0.8
Annals of Finance Pub Date : 2024-08-27 DOI: 10.1007/s10436-024-00453-6
Masahiro Handa, Noriyoshi Sakuma, Ryoichi Suzuki
{"title":"A Girsanov transformed Clark-Ocone-Haussmann type formula for (L^1)-pure jump additive processes and its application to portfolio optimization","authors":"Masahiro Handa,&nbsp;Noriyoshi Sakuma,&nbsp;Ryoichi Suzuki","doi":"10.1007/s10436-024-00453-6","DOIUrl":"10.1007/s10436-024-00453-6","url":null,"abstract":"<div><p>We derive a Clark-Ocone-Haussmann (COH) type formula under a change of measure for <span>( L^1 )</span>-canonical additive processes, providing a tool for representing financial derivatives under a risk-neutral probability measure. COH formulas are fundamental in stochastic analysis, providing explicit martingale representations of random variables in terms of their Malliavin derivatives. In mathematical finance, the COH formula under a change of measure is crucial for representing financial derivatives under a risk-neutral probability measure. To prove our main results, we use the Malliavin-Skorohod calculus in <span>( L^0 )</span> and <span>( L^1 )</span> for additive processes, as developed by Di Nunno and Vives (2017). An application of our results is solving the local risk minimization (LRM) problem in financial markets driven by pure jump additive processes. LRM, a prominent hedging approach in incomplete markets, seeks strategies that minimize the conditional variance of the hedging error. By applying our COH formula, we obtain explicit expressions for locally risk-minimizing hedging strategies in terms of Malliavin derivatives under the market model underlying the additive process. These formulas provide practical tools for managing risks in financial market price fluctuations with <span>(L^1)</span>-additive processes.</p></div>","PeriodicalId":45289,"journal":{"name":"Annals of Finance","volume":"20 3","pages":"329 - 352"},"PeriodicalIF":0.8,"publicationDate":"2024-08-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://link.springer.com/content/pdf/10.1007/s10436-024-00453-6.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142198554","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Option pricing in the Heston model with physics inspired neural networks 利用物理学启发神经网络在赫斯顿模型中进行期权定价
IF 0.8
Annals of Finance Pub Date : 2024-08-26 DOI: 10.1007/s10436-024-00452-7
Donatien Hainaut, Alex Casas
{"title":"Option pricing in the Heston model with physics inspired neural networks","authors":"Donatien Hainaut,&nbsp;Alex Casas","doi":"10.1007/s10436-024-00452-7","DOIUrl":"10.1007/s10436-024-00452-7","url":null,"abstract":"<div><p>In absence of a closed form expression such as in the Heston model, the option pricing is computationally intensive when calibrating a model to market quotes. this article proposes an alternative to standard pricing methods based on physics-inspired neural networks (PINNs). A PINN integrates principles from physics into its learning process to enhance its efficiency in solving complex problems. In this article, the driving principle is the Feynman-Kac (FK) equation, which is a partial differential equation (PDE) governing the derivative price in the Heston model. We focus on the valuation of European options and show that PINNs constitute an efficient alternative for pricing options with various specifications and parameters without the need for retraining.</p></div>","PeriodicalId":45289,"journal":{"name":"Annals of Finance","volume":"20 3","pages":"353 - 376"},"PeriodicalIF":0.8,"publicationDate":"2024-08-26","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142198555","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
The effects of social media use by bank depositors 银行储户使用社交媒体的影响
IF 0.8
Annals of Finance Pub Date : 2024-08-19 DOI: 10.1007/s10436-024-00450-9
Jianglin Dennis Ding, George G. Pennacchi
{"title":"The effects of social media use by bank depositors","authors":"Jianglin Dennis Ding,&nbsp;George G. Pennacchi","doi":"10.1007/s10436-024-00450-9","DOIUrl":"10.1007/s10436-024-00450-9","url":null,"abstract":"<div><p>A simple model is developed to analyze the effects of social media use by a bank’s uninsured depositors. While social media increases the likelihood of bank runs, it can be ex-ante beneficial to a bank by raising its shareholders’ equity. Social media enhances monitoring of a bank’s financial condition, thereby giving uninsured depositors a valuable option to withdraw early and avoid potential losses in states when a bank is likely to be insolvent. Recognizing this option, uninsured depositors require a lower promised interest rate that reduces the bank’s cost of funding at the expense of a greater liability for the bank’s deposit insurer.</p></div>","PeriodicalId":45289,"journal":{"name":"Annals of Finance","volume":"20 3","pages":"289 - 300"},"PeriodicalIF":0.8,"publicationDate":"2024-08-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"142198556","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
Group lending as a mechanism for self-insuring default risk 作为违约风险自我保险机制的集体贷款
IF 0.8
Annals of Finance Pub Date : 2024-07-28 DOI: 10.1007/s10436-024-00447-4
Andreas Krause
{"title":"Group lending as a mechanism for self-insuring default risk","authors":"Andreas Krause","doi":"10.1007/s10436-024-00447-4","DOIUrl":"10.1007/s10436-024-00447-4","url":null,"abstract":"<div><p>We show that banks can provide loans at low costs to high-risk borrowers in the form of a group lending contract in which all members are jointly liable for their loans. By providing such contracts borrowers self-insure against some of the default risk the bank faces. We determine the optimal group size in a competitive banking system and find that it is reasonably small and borrowers internalize an increasing fraction of the risk the higher their risks are.</p></div>","PeriodicalId":45289,"journal":{"name":"Annals of Finance","volume":"21 1","pages":"97 - 106"},"PeriodicalIF":0.8,"publicationDate":"2024-07-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://link.springer.com/content/pdf/10.1007/s10436-024-00447-4.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"141778049","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
引用次数: 0
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