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The IUP Journal of Financial Risk Management
ISSN: 0972-916X
A ‘peer reviewed’ journal indexed on Cabell’s Directory,
and also distributed by EBSCO and Proquest Database


Previous Issues

The IUP Journal of Financial Risk Management is a quarterly journal that focuses on identifying financial risk, risk management models, accounting for derivatives, risk-hedging techniques, asset liability management. The journal provides a platform for cutting edge research in the field of financial risk management.

Privileged access to Online edition for Subscribers.
Editorial Board
Information to Authors
  • Identifying Financial Risk
  • Risk Management Models
  • Accounting for Derivatives
  • Risk-Hedging Techniques
  • Asset Liability Management
Rational Greeks
Modeling Time-Varying Volatility in Indian Commodity Futures Return: Some Empirical Evidence
The Impact of Future Trading on Volatility in Agriculture Commodity: A Case of Pepper
Multi-Objective Linear Programming in Portfolio Selection
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Rational Greeks

--Winfried G Hallerbach

Risk analyses often require the revaluation of complex financial instruments over a large set of risk factor scenarios. In many instances, full revaluation is numerically-intensive and hence too costly. In that case, one can resort to partial revaluations using Greeks: partial derivatives of the instrument with respect to the underlying value drivers. Taylor series approximations to pricing functions are only valid for relatively small changes in the risk factors and show large approximation errors in the tails of the distribution. This paper shows how partial revaluation can be improved by using (modified) Padé rational approximants. Firstly, it is shown how rational approximation enhances the estimation of effective Greeks from perturbated risk factors. Secondly, it is shown that rational approximants outperform conventional Taylor approximants in approximating pricing functions. Rational Greeks signify a substantial improvement in approximation accuracy, even for substantial changes in risk factors.

Article Price : Rs.50

Modeling Time-Varying Volatility in Indian Commodity Futures Return:
Some Empirical Evidence

--Sujoy Bhattacharya and Pulkit Gupta

The aim of this paper is to introduce several volatility models and use these models to predict the conditional variance of the rate of return in Indian commodity future market. This paper chooses the Generalized Autoregressive Conditional Heteroscedasticity (GARCH), E-GARCH, GJRGARCH and APARCH models to analyze the rate of return and considers using three different distributions on error terms: normal distribution, Student’s t distribution and skewed t distribution. So this paper mainly captures the forecasting performance with volatility models under different error distributions. Finally, by using AIC, the best model is chosen to predict the conditional variance. Forecasting performance is checked by using Mean Square Error (MSE), Heteroskedasticity- Adjusted Squared Error (HASE), Logarithmic Error (LE) and Mincer Zarnowitz Regression. This paper selects three Generic 1st Future Contracts traded on MCX (Multi-Commodity Exchange of India): Aluminum, Copper and Zinc. It is concluded that long memory is an important characteristic of the Aluminum, Copper and Zinc futures volatility returns and should be considered when addressing investment decisions.

Article Price : Rs.50

The Impact of Future Trading on Volatility in Agriculture Commodity: A Case of Pepper

--Tanushree Sharma

Black pepper is known as a flowering vine in the family Piperaceae. While Vietnam is the largest producer and exporter of pepper in the world, producing almost one-third of the world’s pepper crop, India produces 19% of the world’s demand for pepper. In India, Kerala and Karnataka account for more than 95% of the pepper production. Indian pepper is of superior quality and is traded at a premium rate in international markets. In the present paper, spot returns of pepper volatility is modeled as a GARCH(1, 1) process using data from 2004 to 2013. GARCH(1, 1) model is used to study the relationship between spot volatility and unexpected futures trading activity, while Granger causality test is used for examining the causality flows from Unexpected Traded Volume (UTV) to spot volatility and unexpected open interest to spot price return. Therefore, whenever there is high unexpected fluctuation in the level of futures trading volume, the volatility of spot prices increases, indicating the destabilizing impact of futures trading. The augmented GARCH model reports positive relationship between UTV and spot returns volatility. The study obsoletes presence of excessive speculation manipulated trading which is a concern for regulators, genuine hedgers and government. Regulators need to take steps for checking speculation in pepper future market. Fluctuation in spot price is due to unexpected trading of hedgers.

Article Price : Rs.50

Multi-Objective Linear Programming in Portfolio Selection

--Gayatri Biswal, B K Mangaraj and K B Das

Portfolio theory originally proposed by Markowitz is based on the assumption that the utility of an investor is a function of two factors, viz., mean and variance (or standard deviation) of return. However, the single index model of Sharpe is a statistical representation of return generating process that expresses return on stock in the form of a regression equation. Literature review on investment portfolio management shows that Sharpe’s  coefficient is the most commonly used performance measure in the determination of optimal portfolio. Sharpe’s model is a linear programming model of the problem considering  as the measure of risk. The present paper, building on the above model, proposes a multi-objective linear programming portfolio selection model that ensures a nondominated solution on the efficient frontier based on the outputs of the single index model. Taking Dow Jones Industrial Average (DJIA) as the market index and considering monthly indices along with the monthly prices of 28 securities for the period from March 1999 to March 2015, this model solves a practical portfolio selection problem in a multi-objective framework. The proposed model also shows its superiority over Sharpe’s single index model.

Article Price : Rs.50


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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.