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Open Access
Article
Publication date: 31 May 2006

Seung Yeon Won

Much debate was brought forth during the South Korean credit card companies' liquidity crisis in 2003. This paper is an in-depth analysis of those credit card issuers' option

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Abstract

Much debate was brought forth during the South Korean credit card companies' liquidity crisis in 2003. This paper is an in-depth analysis of those credit card issuers' option embedded commercial paper (mentioned as ‘option CP’ henceforth). The main purpose of this paper is in evaluating the ‘option CP's fair value, with the decomposition and analysis on ‘option CP’.

Option CP is stipulated as a CP joined by an OTC credit derivative product. The structure is set so that anyone of the two options, put options and call options, will be executed.

Therefore, the price of option CP excluding the credit option portion will be equal to that of the standard coupon bond at the same maturity.

However, empirical evidence shows otherwise. The evidence clearly states that the option CP yield rates were generally quoted lower than the fair-value rates, even if option premium of credit option portion was included in calculating the value. This evidence has an implication that ‘option CP’s rates are generally issued and traded with unfair value. This paper has significance that it made valuation model of ‘option CP’ and evaluated its fairness, by way of the in-depth analysis of option CP which has not been before.

Details

Journal of Derivatives and Quantitative Studies, vol. 14 no. 1
Type: Research Article
ISSN: 2713-6647

Keywords

Book part
Publication date: 27 February 2009

Chueh-Yung Tsao and Chao-Ching Liu

Owing to the fact that the over-the-counter (OTC) market has no organized exchange, the options traded in the OTC market are more likely to be exposed to credit risk, Asian options

Abstract

Owing to the fact that the over-the-counter (OTC) market has no organized exchange, the options traded in the OTC market are more likely to be exposed to credit risk, Asian options being one of them. In this chapter we first discuss the pricing of geometric Asian options and the Black–Scholes options model subject to credit risk. We then combine the two models to derive a closed-form formula for pricing a geometric Asian option subject to the credit risk. The numerical analysis reveals that other pricing formulae existing in the literature can cause serious pricing errors when there is a possibility of default in reality.

Details

Research in Finance
Type: Book
ISBN: 978-1-84855-447-4

Book part
Publication date: 11 December 2006

Chuang-Chang Chang and Yu Jih-Chieh

We set out, in this paper, to extend the Das and Sundaram (2000) model as a means of simultaneously considering correlated default risk structure and counter-party risk. The…

Abstract

We set out, in this paper, to extend the Das and Sundaram (2000) model as a means of simultaneously considering correlated default risk structure and counter-party risk. The multinomial model established by Kamrad and Ritchken (1991) is subsequently modified in order to facilitate the development of a computational algorithm for valuing two types of active credit derivatives, credit-spread options and default baskets. From our numerical examples, we find that along with the correlated default risk, the existence of counter-party risk results in a substantially lower valuation of credit derivatives. In addition, we find that different settings of the term structure of interest rate volatility also have a significant impact on the value of credit derivatives.

Details

Research in Finance
Type: Book
ISBN: 978-1-84950-441-6

Article
Publication date: 9 May 2020

Stephan Zielke and Marcin Komor

This paper analyses three strategies in customers’ use to afford consumption in a developed and an emerging market for different product groups. The strategies are: (1) usage of…

Abstract

Purpose

This paper analyses three strategies in customers’ use to afford consumption in a developed and an emerging market for different product groups. The strategies are: (1) usage of loyalty cards, (2) usage of credit cards and (3) usage of long-term credits.

Design/methodology/approach

Mall intercept surveys conducted in Poland (emerging market) and Germany (developed market) provide data for testing a set of hypotheses using ANOVAs.

Findings

Results show that customers in emerging markets show no differences in the usage of loyalty cards for product categories with high shopping frequency (groceries) compared to developed markets, while in all other product categories loyalty card usage is stronger. Results show further that in low price categories, customers in emerging markets use credit card payments more often compared to customers in developed markets. In high price categories, they use credit cards less often, but long-term credits more often.

Research limitations/implications

Results have implications for the design of loyalty programs and payment options in different markets. Results have also implications for public policy regarding concerns about increasing private debt in emerging countries.

Originality/value

This paper suggests a cost-benefit framework where customers in emerging countries perceive benefits of loyalty cards and credit options higher, while they are willing to bear higher costs. As a result, effects of product category characteristics on usage that are observable in developed markets do not exist in emerging markets.

Details

International Journal of Retail & Distribution Management, vol. 48 no. 6
Type: Research Article
ISSN: 0959-0552

Keywords

Article
Publication date: 20 April 2010

Peter Klein and Jun Yang

The purpose of this paper is to extend the models of Johnson and Stulz, Klein and Klein and lnglis to analyse the properties of vulnerable American options.

Abstract

Purpose

The purpose of this paper is to extend the models of Johnson and Stulz, Klein and Klein and lnglis to analyse the properties of vulnerable American options.

Design/methodology/approach

The presented model allows default prior to the maturity of the option based on a barrier which is linked to the payoff on the option. Various measures of risk denoted by the standard Greek letters are studied, as well as additional measures that arise because of the vulnerability.

Findings

The paper finds that the delta of a vulnerable American put does not always increase with the price of the underlying asset, and may be significantly smaller than that of a non‐vulnerable put. Because of deadweight costs associated with bankruptcy, delta and gamma are undefined for some values of the underlying asset. Rho may be considerably higher while vega may be smaller than for non‐vulnerable options. Also, the probability of early exercise for vulnerable American options is higher and the price of the underlying asset at which this is optimal depends on the degree of credit risk of the option writer.

Originality/value

This paper makes a contribution to understanding the effect of credit risk on option valuation.

Details

Managerial Finance, vol. 36 no. 5
Type: Research Article
ISSN: 0307-4358

Keywords

Article
Publication date: 1 January 1979

Michael Bliss

Late last year, the NRMA, with Payment Systems Inc and Touche Ross, organised a three‐day conference devoted to the future of consumer credit in Europe. This paper by Michael…

Abstract

Late last year, the NRMA, with Payment Systems Inc and Touche Ross, organised a three‐day conference devoted to the future of consumer credit in Europe. This paper by Michael Bliss featured in the proceedings, and takes up the topic of credit in relation to Debenhams' activities. Debenhams have used their credit card facility to its full potential. Employing all the forces of marketing, advertising and in‐store selling, they have pushed on to a time when they can look forward, not only to consumer loyalty, but to profits as well, when in the past credit has been a subsidised service to the selling operation. Now read on.

Details

Retail and Distribution Management, vol. 7 no. 1
Type: Research Article
ISSN: 0307-2363

Article
Publication date: 14 February 2023

Basel Elkhapery, Peiman Kianmehr and Ryan Doczy

Schools should be adequately built and operated to protect students' health. Green building rating systems, including Leadership in Energy and Environmental Design (LEED), assist…

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Abstract

Purpose

Schools should be adequately built and operated to protect students' health. Green building rating systems, including Leadership in Energy and Environmental Design (LEED), assist the construction industry in improving both the resource efficiency and indoor environmental quality of its buildings. Construction professionals may waive some green modifications and available optional credits due to their high costs or construction complexities. This study investigates whether cost-effective green modifications can adequately address the student health.

Design/methodology/approach

In an effort to identify how school projects in Dubai, UAE prioritized LEED credits related to occupant well-being, the study identified eight LEED credits (called “Health and wellbeing” credits). Cost data from a sample of nine Dubai schools were used to develop an indicator, named the Feasibility Index Score (FIS), to quantify the attractiveness of LEED credits based on their cost and implementation complexity. Physical measurements taken from the sample schools give a window into current indoor environmental quality (IEQ) conditions of schools in the local region, while FIS provides insight into potential financial barriers towards improving these conditions.

Findings

The authors identified eight “Health and wellbeing” credits, which may net up to 14 points or 13% of all possible LEED points. Despite this, assessments of the sample schools revealed that six of the “Health and wellbeing” credits exhibited relatively low FIS values. This may cause these credits to be waived when lower tiers of LEED certifications are desired.

Research limitations/implications

A sample of nine schools was chosen for this research; further investigation using a greater sample size is recommended.

Practical implications

The paper's IEQ assessment indicates the importance of health-related credits and suggests implementing them regardless of their FIS.

Originality/value

This paper recognizes the importance of providing more weight to credits that directly impact the health of occupants, particularly when upgrading existing structures.

Details

Management of Environmental Quality: An International Journal, vol. 34 no. 3
Type: Research Article
ISSN: 1477-7835

Keywords

Article
Publication date: 1 February 2002

GUNTER DUFEY and FLORIAN REHM

The authors provide the reader with a simple introduction to credit derivatives. The article includes a broad overview of the market, estimates of the global market size, and a…

Abstract

The authors provide the reader with a simple introduction to credit derivatives. The article includes a broad overview of the market, estimates of the global market size, and a description of the most widely used products.

Details

The Journal of Risk Finance, vol. 3 no. 3
Type: Research Article
ISSN: 1526-5943

Case study
Publication date: 20 January 2017

June A. West, Gretchen A. Kalsow, Lee Fennel and Jenny Mead

Fingerhut, based in Minnetonka, Minnesota, is a direct-marketing company that sells a smorgasbord of consumer goods through an array of specially targeted catalogs. In November…

Abstract

Fingerhut, based in Minnetonka, Minnesota, is a direct-marketing company that sells a smorgasbord of consumer goods through an array of specially targeted catalogs. In November 1996, an article in the Star Tribune, a major Minneapolis newspaper, drew attention to a class-action lawsuit pending against Fingerhut that suggests the firm made its profits by exploiting the poor. Several civil rights groups rallied around the suit and submitted amicus curiae in favor of the litigation. The case illustrates issues in ethics and management communication. Discussions focus on the constituencies. Is Fingerhut exploiting its customers or providing them with an affordable method of obtaining valued consumer goods on credit? Do retailers have a duty to offer products at reasonable prices? Are the high interest rates reasonable given the risk? What are the options: pawn shops, rent-to-own? What is the profile of the typical Fingerhut customer? Discussions also focus on the issues communicating to the constituencies. How much damage will the lawsuit do to Fingerhut's image as an ethical, socially conscious company? What communication strategies can the firm employ? Should it react to the lawsuit? What should it tell its employees?

Details

Darden Business Publishing Cases, vol. no.
Type: Case Study
ISSN: 2474-7890
Published by: University of Virginia Darden School Foundation

Keywords

Article
Publication date: 1 July 1992

Steve Worthington

Only a small proportion of consumer borrowing is provided by bank andretailer credit cards. Discusses how recent changes in credit card terms andsocietal attitudes may further…

Abstract

Only a small proportion of consumer borrowing is provided by bank and retailer credit cards. Discusses how recent changes in credit card terms and societal attitudes may further reduce that borrowing. Suggests debit cards will become increasingly important as a means of payment in the UK – plastic cards in general will be used more as paper transactions decline. In Europe there may be convergence of plastic card usage with eventual reduction in the number of credit card issuers.

Details

International Journal of Retail & Distribution Management, vol. 20 no. 7
Type: Research Article
ISSN: 0959-0552

Keywords

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