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Article
Publication date: 16 November 2012

D. Elaine Pressman and John Flockton

The purpose of this paper is to outline the process of risk assessment for terrorists and violent political extremists and to present an example of such an approach. The…

Abstract

Purpose

The purpose of this paper is to outline the process of risk assessment for terrorists and violent political extremists and to present an example of such an approach. The approach proposed is referred to as the VERA 2 or violent extremism risk assessment protocol (Consultative Version 2).

Design/methodology/approach

A review of the knowledge base relating to risk assessment and risk assessment methodology was undertaken with a focus on relevance to individual terrorists and violent extremists. The need for a specific approach for the risk assessment of terrorists that differs from approaches used for ordinary violent criminals was identified. A model that could be used for the risk assessment of terrorists was identified with pertinent risk indicators. This was structured into a protocol referred to as the VERA (Consultative Version 2). The approach is intended to be applied to different types of violent extremists, terrorists and unlawful violent offenders motivated by religious, political or social ideologies.

Findings

First, risk assessments of adjudicated terrorists and violent extremists should be undertaken with risk indicators that are relevant to ideological motivated violence. Indicators used for ordinary common violence differ in substantive ways from those relevant to terrorists and therefore may have questionable relevance for the assessment of risk in terrorists. Second, it is possible to construct an evidence‐based risk assessment approach for the range of violent extremists and terrorists using a structured professional judgment approach with pertinent risk indicators. The VERA 2 is an example of this type of risk assessment protocol for terrorists and unlawful violent extremists.

Research limitations/implications

Risk assessment tools that have been developed for ordinary violent criminals and members of organised criminal gangs should be used with caution with terrorists, violent extremists and other perpetrators of ideologically motivated unlawful violence. Specific risk assessment approaches for terrorists with relevant indicators should be used. At this time, terrorist oriented approaches such as the VERA 2 are to be considered consultative and used as an add‐on to other established approaches.

Originality/value

There are few transparent, structured risk assessment approaches that use indicators specifically relevant to violent political extremists and terrorists. One new approach, the VERA 2 is outlined in the paper using risk indicators that differ in substantive ways from those used for other ordinary violent criminals.

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Book part
Publication date: 1 March 2021

John P. Koeplin and Pascal Lélé

Integrating interdisciplinary studies with Human Capital Management Accounting (HCMA) refers to the dynamics of organized interdisciplinary action that are transversal or…

Abstract

Integrating interdisciplinary studies with Human Capital Management Accounting (HCMA) refers to the dynamics of organized interdisciplinary action that are transversal or cross-cutting. This approach requires the mastery of a certain number of technical skills and disciplines, as well as the capacity to use them in a process to solve problems of financial performance. This is accomplished through the specific interaction tasks that are performed by each management function and operational unit, which act in real time with others, in the same direction as an organizational team, using a selected risk appetite threshold base.

Putting business fields side by side, (i.e., business disciplines silos, as is normally the case in MBA programs), is not enough to create the transversal interaction dynamic needed for firms to achieve expected financial performance goals. As a result, few graduates today have the cross-cutting or vertical skills required to act, in real time, from their workstation in accordance with the pyramid shape of the organization chart in order to create value.

This chapter presents the results of the interface established by a faculty member in the Accounting Department of the University of San Francisco with a “seasoned leader in the FinTech industry.” It proposes a single portal for employers and HRMs to which the continuing education services of professional training associations, executive education departments of colleges, and MBA schools and universities, can connect to issue the HCMA certificate supplementing their training offerings focused on “Leadership Development”.

Details

Recent Developments in Asian Economics International Symposia in Economic Theory and Econometrics
Type: Book
ISBN: 978-1-83867-359-8

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Article
Publication date: 1 September 2002

Bert Bruggink and Eugen Buck

In this case study the authors outline how a major financial institution in the Netherlands deals with the practical aspects of implementing a Basel II‐compliant economic…

Abstract

In this case study the authors outline how a major financial institution in the Netherlands deals with the practical aspects of implementing a Basel II‐compliant economic capital framework. The paper gives an overview of the programme Rabobank has set on track for the implementation and discusses the prioritisation of project streams and how to track progress of the programme. An important aspect of the whole programme is communication between all the parties involved. Finally, the paper concludes with a discussion of the major challenges faced during the implementation process.

Details

Journal of Financial Regulation and Compliance, vol. 10 no. 3
Type: Research Article
ISSN: 1358-1988

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Article
Publication date: 10 May 2013

Zhaoji (George) Yang and Liang Zhong

The purpose of this paper is to present a discrete quantitative trading strategy to directly control a portfolio's maximum percentage of drawdown losses while trying to…

Abstract

Purpose

The purpose of this paper is to present a discrete quantitative trading strategy to directly control a portfolio's maximum percentage of drawdown losses while trying to maximize the portfolio's long‐term growth rate.

Design/methodology/approach

The loss control target is defined through a Rolling Economic Drawdown (REDD) with a constant look‐back time window. The authors specify risk aversion in the power‐law portfolio wealth utility function as the complement of maximum percentage loss limit and assume long‐term stable Sharpe ratios for asset class indexes while updating volatility estimation in dynamic asset allocation implementation.

Findings

Over a test period of the past 20 years (1992‐2011), a risk‐based out‐of‐sample dynamic asset allocation among three broad based indexes (equity, fixed income and commodities) and a risk free asset, is robust against variations in capital market expectation inputs, and out‐performs the in‐the‐sample calibrated model and traditional asset allocation significantly.

Research limitations/implications

The current proposal can lead to a new mathematical framework for portfolio selection. Besides investors' liquidity and behavioural constraints, macroeconomic and market cycle, and the potential of central bank interventions following a market crash, could be additionally considered for a more rigorous dynamic asset allocation model.

Practical implications

Besides the benefit of a clear mandate to construct suitable client portfolios, the portfolio approach can be applied to design invest‐able securities, such as principal‐guaranteed investment products, target risk asset allocation ETFs, and target‐date mutual funds with a glide path, etc. The formulation can also be implemented as a managed futures hedge fund portfolio.

Originality/value

The paper introduces the Rolling Economic Drawdown (REDD) concept and specifies risk aversion as the floor of maximum percentage loss tolerance. Dynamic asset allocation is implemented through updating estimation of asset class volatilities.

Details

China Finance Review International, vol. 3 no. 2
Type: Research Article
ISSN: 2044-1398

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Article
Publication date: 13 November 2007

Elisa Luciano

The implementation of credit risk models has largely relied either on the use of historical default dependence, as proxied by the correlation of equity returns, or on risk

Abstract

Purpose

The implementation of credit risk models has largely relied either on the use of historical default dependence, as proxied by the correlation of equity returns, or on risk neutral equicorrelation, as extracted from CDOs. Contrary to both approaches, the purpose of this paper is to infer risk neutral dependence from CDS data, taking counterparty risk into consideration and avoiding equicorrelation. The impact of risk neutral correlation on the fees of some higher dimensional credit derivatives is also explored.

Design/methodology/approach

Copula functions are used in order to capture dependency. An application to market data is provided.

Findings

Both in the FtD and CDO cases, using (the correct) risk neutral measure instead of equity dependency has the same effect as the adoption of a copula with tail dependency instead of a Gaussian one. This should be important for those who resort to copulas in credit derivative pricing.

Originality/value

As far as is known, several attempts have been made in order to compare the behavior of different copulas in derivative pricing; however, no attempt has been made in order to extract risk neutral dependence without using the equicorrelation assumption. Therefore no attempt has been made to understand which copula features could proxy for risk neutrality, whenever risk neutral dependency cannot be inferred (for instance because CDS involving that name are not actively traded)

Details

The Journal of Risk Finance, vol. 8 no. 5
Type: Research Article
ISSN: 1526-5943

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Book part
Publication date: 27 July 2012

James K. Summers, Timothy P. Munyon, Annette L. Ranft, Gerald R. Ferris and M. Ronald Buckley

Executives exert a pervasive influence on the organizations they lead. As such, scholars have long considered how to calibrate the risks inherent in executive decision…

Abstract

Executives exert a pervasive influence on the organizations they lead. As such, scholars have long considered how to calibrate the risks inherent in executive decision making, often relying on incentives and compensation to calibrate executive risk behavior. However, there are shortcomings that reduce the efficacy of this approach, largely because incentives and compensation do not alter the work environment itself, which play a significant role influencing executive risk behavior. Consequently, in this chapter, we propose a conceptualization that integrates executive risk-taking with work design, framing three central features of the strategic leader job and work environment that may be manipulated to channel and shape executive risk-taking. Specifically, accountability, discretion, and relationships are proposed as the key higher-order characteristics of the executive work context, and they are examined with respect to optimal calibration in order to maximize both executive performance and well-being, as well as organizational coordination and control. Implications of this conceptualization and directions for future research are discussed.

Details

Research in Personnel and Human Resources Management
Type: Book
ISBN: 978-1-78190-172-4

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Article
Publication date: 26 September 2008

Ming‐Chih Tsai, Chun‐Hua Liao and Chia‐shing Han

This paper aims to develop a qualitative risk model to empirically identify the important outsourcing risks of logistical functions using the data of Taiwanese retail chains.

Abstract

Purpose

This paper aims to develop a qualitative risk model to empirically identify the important outsourcing risks of logistical functions using the data of Taiwanese retail chains.

Design/methodology/approach

Transaction cost theory (TCT) and resourced based view (RBV) were combined to develop risk events. Analytical hierarchy process was used for risk calibration. Valid data from 75 outsourcer chains and 41 in‐house chains were collected through a three‐stage survey. Outsourcers were further clustered by risk perception using Wards' and K‐mean clustering and examined by an ANOVA. Results of outsourcers and in‐house chains were compared using nonparametric Spearman rank correlation test.

Findings

The risk perception increases as the number of functions outsourced increases. Risks related to transaction costs and strategic resources were both significant. Of the three main risks identified, asset risk and competence risk are more serious concerns than relationship risk. The values of information risk and loss of control account for the bulk of asset risk, while those of poor competence leverage and poor competence in supporting customer service comprise competence risk. Finally, in terms of risk priority, in‐house chains showed no significant difference from outsourcers.

Research limitation/implication

Interrelationships between risk events were limited to avoid complication. Also, due to the sample limit, the risks calibrated may be more associated with outsourcing execution than outsourcing building/abandoning.

Practical implication

The risk structure developed herein can be used as a systematic checklist for outsourcing decision‐making. The qualitative results may provide specific indications for further risk analysis and future risk control.

Originality/value

The study fills a gap in the literature, where prior work has seldom used empirical research to compare how well TCT and the RBV predict logistics outsourcing risk, in particular for the distribution side of the supply chain.

Details

Supply Chain Management: An International Journal, vol. 13 no. 6
Type: Research Article
ISSN: 1359-8546

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Article
Publication date: 31 May 2021

Sebastian Schlütter

This paper aims to propose a scenario-based approach for measuring interest rate risks. Many regulatory capital standards in banking and insurance make use of similar…

Abstract

Purpose

This paper aims to propose a scenario-based approach for measuring interest rate risks. Many regulatory capital standards in banking and insurance make use of similar approaches. The authors provide a theoretical justification and extensive backtesting of our approach.

Design/methodology/approach

The authors theoretically derive a scenario-based value-at-risk for interest rate risks based on a principal component analysis. The authors calibrate their approach based on the Nelson–Siegel model, which is modified to account for lower bounds for interest rates. The authors backtest the model outcomes against historical yield curve changes for a large number of generated asset–liability portfolios. In addition, the authors backtest the scenario-based value-at-risk against the stochastic model.

Findings

The backtesting results of the adjusted Nelson–Siegel model (accounting for a lower bound) are similar to those of the traditional Nelson–Siegel model. The suitability of the scenario-based value-at-risk can be substantially improved by allowing for correlation parameters in the aggregation of the scenario outcomes. Implementing those parameters is straightforward with the replacement of Pearson correlations by value-at-risk-implied tail correlations in situations where risk factors are not elliptically distributed.

Research limitations/implications

The paper assumes deterministic cash flow patterns. The authors discuss the applicability of their approach, e.g. for insurance companies.

Practical implications

The authors’ approach can be used to better communicate interest rate risks using scenarios. Discussing risk measurement results with decision makers can help to backtest stochastic-term structure models.

Originality/value

The authors’ adjustment of the Nelson–Siegel model to account for lower bounds makes the model more useful in the current low-yield environment when unjustifiably high negative interest rates need to be avoided. The proposed scenario-based value-at-risk allows for a pragmatic measurement of interest rate risks, which nevertheless closely approximates the value-at-risk according to the stochastic model.

Details

The Journal of Risk Finance, vol. 22 no. 1
Type: Research Article
ISSN: 1526-5943

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Article
Publication date: 30 April 2020

Pietro Vozzella and Giampaolo Gabbi

This analysis asks whether regulatory capital requirements capture differences in systematic risk for large firms and micro-, small- and medium-sized enterprises (MSMEs)…

Abstract

Purpose

This analysis asks whether regulatory capital requirements capture differences in systematic risk for large firms and micro-, small- and medium-sized enterprises (MSMEs). The authors explore whether bank capital regulations intended to support SMEs’ access to borrowing are effective. The purpose of this paper is to find out whether the regulatory design (particularly the estimate of asset correlations) positively affects the lending process to small and medium enterprises, compared to large corporates.

Design/methodology/approach

The authors investigate the appropriateness of bank capital requirements considering default risk of loans to MSMEs and distortions in capital charges between MSMEs and large firms under the Basel III framework. The authors compiled firm-level data to capture the proportions of MSMEs and large firms in Italy during 2000–2014. The data set is drawn from financial reports of 708,041 firms over 15 years. Unlike most empirical studies that correlate assets and defaults, this study assesses a firm’s creditworthiness not by agency ratings or by sampling banks but by a specific model to estimate one-year probabilities of default.

Findings

The authors found that asset correlations increase with firms’ size and that large firms face considerably greater systematic risk than MSMEs. However, the empirical values are much lower than regulatory values. Moreover, when the authors focused on the MSME segment, systematic risk is rather stable and varies significantly with turnover. This analysis showed that the regulatory supporting factor represents a valuable attempt to treat MSME loans more fairly with respect to banks’ capital requirements. Basel III-internal ratings-based approach results show that when the supporting factor is applied, the Risk-Weighted-Assets (RWA) differences between MSMEs and large firms increase.

Research limitations/implications

The implications of this research is that banking regulators to make MSMEs support more effective should review asset correlation estimation criteria, refining the fitting with empirical evidence.

Practical implications

The asset correlation parameter stipulated by the Basel framework is invariant with economic cycles, decreases with borrowers’ probability of default and increases with borrowers’ assets. The authors found that those relations do not hold. This way, asset correlations fall below parameters defined by regulatory formula, and SMEs’ credit risk could be overstated, resulting in a capital crunch.

Originality/value

The original contribution of this paper is to demonstrate that the gap between empirical and regulatory capital charge remains high. When the authors examined the Basel III-IRBA, results showed that when the supporting factor is applied, the RWA differences between MSMEs and large firms increase. This is particularly strong for loans to small- and medium-sized companies. Correctly calibrating asset correlations associated with the supporting factor eliminates regulatory distortions, reducing the gap in capital charges between loans to large corporate and MSMEs.

Details

Journal of Financial Regulation and Compliance, vol. 28 no. 4
Type: Research Article
ISSN: 1358-1988

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Book part
Publication date: 14 August 2014

Brent W. Ritchie, P. Monica Chien and Bernadette M. Watson

Although the significance of travel risks is well documented, the process through which people assess their vulnerability and ultimately take on preventive measures needs…

Abstract

Although the significance of travel risks is well documented, the process through which people assess their vulnerability and ultimately take on preventive measures needs clarification. Motivated by concern with traveler’s underestimation of risks, this chapter provides a crucial next step by introducing new theory to explain how people calibrate travel risks. The conceptual model incorporates constructs from motivational theories, cognitive appraisal, and emotionality. Future studies adopting this model will broaden the nature and scope of research on travel risk while helping government and industry to increase the reach and relevance of travel health and safety messages.

Details

Tourists’ Behaviors and Evaluations
Type: Book
ISBN: 978-1-78441-172-5

Keywords

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