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Article
Publication date: 24 February 2021

Krishna Vishwanath Iyer and V.V. Ravi Kumar

This paper aims to propose an innovative blockchain-based system enabling implementation of a bond-pays model in credit rating industry. Issuer-pays model has led to…

Abstract

Purpose

This paper aims to propose an innovative blockchain-based system enabling implementation of a bond-pays model in credit rating industry. Issuer-pays model has led to conflict of interest resulting in rating shopping and inflation. Alternative business models have their own problems, e.g. investor-pays model suffers from “free rider” and public dissemination challenges, whereas government-controlled business models can lead to market distortion. Bond-pays model has been difficult to implement owing to operational difficulties in managing co-ordination amongst multiple entities involved, often with conflicting goals. Blockchain technology enables inter-organizational systems that foster trust amongst non-trusting entities, facilitating business functions such as credit rating to be carried out.

Design/methodology/approach

This paper outlines current processes in credit rating business that has led to repeated rating failures and proposes a new set of processes, leveraging capabilities of blockchain technology to enable implementation of an arms-length bond-pays model.

Findings

A proof-of-concept system, namely, rating chain has been designed to implement a small part of the proposed model to establish technical feasibility in a blockchain environment.

Practical implications

A fully functional blockchain-based system on bond-pays business model, if built and adopted, could impact how credit rating market functions currently and could contribute to a reduction in rating-related challenges.

Originality/value

The proposal to adopt blockchain technologies in implementing a bond-pays model in credit rating industry is a novel contribution.

Book part
Publication date: 28 October 2019

Angelo Corelli

Abstract

Details

Understanding Financial Risk Management, Second Edition
Type: Book
ISBN: 978-1-78973-794-3

Abstract

Details

Broken Pie Chart
Type: Book
ISBN: 978-1-78743-554-4

Book part
Publication date: 11 July 2013

Brenda Anderson, Mario J. Maletta and Kimberly Moreno

Most undergraduate and graduate financial accounting exercises follow a “forward based” pedagogical approach where students learn how accounting events (causes) are…

Abstract

Most undergraduate and graduate financial accounting exercises follow a “forward based” pedagogical approach where students learn how accounting events (causes) are captured in the accounting system and appear on the financial statements (effects). While these forward based approaches are necessary and effective ways to teach the fundamentals of accounting, they provide a relatively narrow procedural perspective on how to use such knowledge. The reality is that many students will be required to solve problems where the ultimate goal is to discern the causes of financial statement outcomes. To solve such problems, “backward based” procedural knowledge is required. Research in cognitive psychology indicates students need exposure to problems that require different procedural knowledge to develop the flexible problem solving schemas necessary to address problems with different end goals (Chen & Mo, 2004). We present a series of financial accounting exercises designed to help students develop skills associated with analyzing financial statement outcomes (effects) to determine the causal accounting events. The exercises also provide a comprehensive review of the primary financial accounting topics typically addressed in introductory accounting courses. This allows the exercises to be used as an ongoing end of chapter review problem or as a comprehensive course review exercise.

Details

Advances in Accounting Education: Teaching and Curriculum Innovations
Type: Book
ISBN: 978-1-78190-840-2

Keywords

Abstract

Details

The Savvy Investor's Guide to Building Wealth Through Traditional Investments
Type: Book
ISBN: 978-1-83909-608-2

Book part
Publication date: 5 January 2015

K. Bryan Menk and Stephanie Malone

The subject area of the assignment is accounting education and testing techniques.

Abstract

Purpose

The subject area of the assignment is accounting education and testing techniques.

Methodology/approach

This paper details an effective method to create individualized assignments and testing materials. Using a spreadsheet (Microsoft Excel), the creation of the unique assignments and answer keys can be semi-automated to reduce the grading difficulties of unique assignments.

Findings

Because students are using a unique data set for each assignment, the students are able to more effectively engage in student to student teaching. This process of unique assignments allows students to collaborate without fear that a single student would provide the answers. As tax laws (e.g., credit and deduction phase-outs, tax rates, and dependents) change depending on the level of income and other factors, an individualized test is ideal in a taxation course.

Practical implications

The unique assignments allow instructors to create markedly different scenarios for each student. Using this testing method requires that the student thoroughly understands the conceptual processes as the questions cannot be predicted. A list of supplementary materials is included, covering sample questions, conversion to codes, and sample assignment questions.

Originality/value

This technique creates opportunities for students to have unique assignments encouraging student to student teaching and can be applied to assignments in any accounting course (undergraduate and graduate). This testing method has been used in Intermediate I and II, Individual Taxation, and Corporate Taxation.

Details

Advances in Accounting Education: Teaching and Curriculum Innovations
Type: Book
ISBN: 978-1-78441-587-7

Keywords

Article
Publication date: 9 February 2018

Mohamed Ariff, Alireza Zarei and Ishaq Bhatti

This paper aims to report practice-relevant anomalous investment yield behavior of two types of bonds – Type A, the mainstream bond, and Type B, which is Sukuk – both…

Abstract

Purpose

This paper aims to report practice-relevant anomalous investment yield behavior of two types of bonds – Type A, the mainstream bond, and Type B, which is Sukuk – both having similar cash-flow-relevant characteristics.

Design/methodology/approach

Bond valuation theory suggests that yields to investors of similarly rated bonds ought to be same. The authors collected time-series data on A and B bonds, all being coupon-paying bonds with similar rating and similar tenor as two matched samples traded in a bond exchange. To ensure the results are extended to different bond sectors, the data set was separated into treasury bonds as risk-free and corporate bonds as risky ones. The data set was further sub-divided into short-, medium- and long-tenor bonds. As the data straddle the Global Financial Crisis period, the authors use appropriate econometric method to control the possible effect from the crisis.

Findings

The average and median yields on Type A bond are significantly different from those of Type B. The test results show significant and systematic differences: treasury bonds of Type A returns yield lower than treasury bonds of Type B; the yields of corporate mainstream bonds (A) are higher than the yields of Sukuk (B). The authors observe these findings constitute a puzzle, being anomalous to theory.

Originality/value

This paper is original in that it is documenting significant differences in pricing of equivalent bonds. This has both theory and practice implications for fixed-income security market practices. The evidence is very strong to suggest that the identical types of bonds may have missing variable that contributes to the difference. Therefore, further research to identify the missing variable is necessary.

Details

International Journal of Islamic and Middle Eastern Finance and Management, vol. 11 no. 1
Type: Research Article
ISSN: 1753-8394

Keywords

Article
Publication date: 1 January 1999

J. PAUL JOSHI and LARRY SWERTLOFF

The advent of derivatives and structured products has coincided with a proliferation of fixed income models used to analyze hedging, pricing, forecasting, and estimation…

Abstract

The advent of derivatives and structured products has coincided with a proliferation of fixed income models used to analyze hedging, pricing, forecasting, and estimation for the term structure of interest rates. This article evaluates five models Ho‐Lee (HL); Black‐Derman‐Toy (BDT); Vasicek; Cox‐Ingersoll‐Ross (CIR); and Heath‐Jarrow‐Morton (HJM) (see Exhibit 1) that are currently used by structured finance practitioners. We suggest which models are most appropriate for assets with different time horizons, interest rate sensitivities and cashflow properties. The authors link model selection to structured financial instruments with the singular focus on the trade‐off between model precision/complexity and calculation costs.

Details

The Journal of Risk Finance, vol. 1 no. 1
Type: Research Article
ISSN: 1526-5943

Article
Publication date: 1 January 1991

Barbara Ruth Campbell

Investing money can be extremely easy, but most of us shy away from making financial decisions that smack of risk, even though we are perfectly willing to buy a house with…

Abstract

Investing money can be extremely easy, but most of us shy away from making financial decisions that smack of risk, even though we are perfectly willing to buy a house with a mortgage or buy everyday items with credit cards. According to Gloria Dinerman, a former Wall Street analyst and now President of Library Co‐Op, librarians are even more conservative than the rest of the population, and although they search for investment information for their clients, they seldom spend time gathering information on avenues for library investing.

Details

The Bottom Line, vol. 4 no. 1
Type: Research Article
ISSN: 0888-045X

Article
Publication date: 5 May 2015

Lin Sun, Calum G. Turvey and Robert A. Jarrow

– The purpose of this paper is to outline a pricing formula for the valuation of catastrophic (CAT) bonds as applied to multiple trigger drought risks in Kenya.

Abstract

Purpose

The purpose of this paper is to outline a pricing formula for the valuation of catastrophic (CAT) bonds as applied to multiple trigger drought risks in Kenya.

Design/methodology/approach

The valuation model is designed around the multiple triggers of the Mexican Catastrophe bonds, but the valuation model is based on Jarrow’s (2010) closed form CAT Bond Pricing model. The authors outline the model structure, the multiple tranches with rainfall triggers, and simulate the model using Monte Carlo methods. Data input was synthesized from historical rainfall data in Kenya’s Moyale region as well as prevailing LIBOR and rates and conventional coupons.

Findings

The authors compute the valuation model using Monte Carlo techniques. The authors found the pricing method to be robust and consistent under various parameter settings including trigger levels, time after launch, recovery rates, coupon spreads, and zero coupon curves. For example the higher the trigger rates, the lower will be the bond price at issue. With 50 percent recovery the CAT bond at issue would be around $702 with a high triggers and 976 with low triggers, but the valuation changes with parameters.

Practical implications

As far as the authors know the use of multiple trigger CAT bonds has been very limited in practice. The valuation formula and methods outlined in this paper show how CAT bonds can be effectively designed to address CAT covariate risks in developing agricultural economies.

Originality/value

This paper examines CAT bonds to investigate multi-trigger rainfall risks in Kenya. The paper shows how CAT bonds can be designed to meet specific and CAT risks. Using Jarrow’s (2010) closed form solution this paper is one of the first to apply it to the macro-management of agricultural risks.

Details

Agricultural Finance Review, vol. 75 no. 1
Type: Research Article
ISSN: 0002-1466

Keywords

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