Credit risk of interest rate swaps : a comparative study of CIR and Monte Carlo simulation approach

This paper compares the credit risk profile for two types of model, the Monte Carlo model used in the existing literature, and the Cox, Ingersoll and Ross (CIR) model. Each of the profiles has a concave or hump-backed shape, reflecting the amortisation and diffusion effects. However, the CIR model generates significantly different results. In addition, we consider the sensitivity of these models of credit risk to initial interest rates, volatility, maturity, kappa and delta. The results show that the sensitivities vary across the models, and we explore the meaning of that variation.

Credit cycle dependent spread determinants in emerging sovereign debt markets

We address credit cycle dependent sovereign credit risk determinants. In our model, the spread determinants' magnitude is conditional on an unobservable endogenous sovereign credit cycle as represented by the underlying state of a Markov regime switching process. Our explanatory variables are motivated in the tradition of structural credit risk models and include changes in asset prices, interest rates, implied market volatility, gold price changes and foreign exchange rates. We examine daily frequency variations of U.S. dollar denominated Eurobond credit spreads of four major Latin American sovereign bond issuers (Brazil, Colombia, Mexico and Venezuela) with liquid bond markets during March 2000 to June 2011. We find that spread determinants are statistically significant and consistent with theory, while their magnitude remarkably varies with the state of the credit cycle. Crisis states are characterized by high spread change uncertainty and high sensitivities with respect to the spread change determinants. We further document that not only changes of local currencies, but also changes of the Euro with respect to the U.S. dollar are significant spread drivers and argue that this is consistent with the sovereigns' ability to pay.

The credit spread dynamics of Latin American euro issues in international bond markets

This paper investigates two important relationships using the sovereign issues made by major Latin American economies in the international bond market: the determinants of credit spread changes using variables derived from structural and macroeconomic theory and the impact of a default episode on the underlying equilibrium dynamics. We find four significant determinants of credit spread changes: an asset and interest rate factor—consistent with structural models of credit spread pricing; the exchange rate—consistent with macroeconomic determinants and the slope of the yield curve—consistent with a business cycle effect. Also, an intra-regional analysis of sovereign yields reveals a shift in the long-run equilibrium dynamics around the Argentine default on the 23 December 2001.

Measurement and structural properties of organizational codes of ethics in private and public Sweden

Purpose – The purpose of this paper is to test the measurement and structural properties in a model of organizational codes of ethics (OCE) in Sweden.

Design/methodology/approach – The measurement and structural properties of four OCE constructs (i.e. surveillance/training, internal communication, external communication, and guidance) were described and tested in a dual sample based upon private and public sectors of Sweden.

Findings – Results show that the measurement and structural models of OCE in part have a satisfactory fit, validity, and reliability.

Research limitations/implications – The paper makes a contribution to theory as it outlines a set of OCE constructs and it presents an empirical test of and OCE model in respect to measurement and structural properties. A number of research limitations are provided.

Practical implications – It provides a model to be considered in the implementation and monitoring of OCE. The present research provides opportunities for further research in refining, extending, and testing the proposed OCE model in other cultural and organizational settings.

Originality/value – The OCE model extends previous studies that have been predominately descriptive, by using confirmatory factor analysis and structural equation modeling.

Scaling the volatility of credit spreads: evidence from Australian dollar eurobonds

The linear rescaling of the variance of an asset's return is used by many asset pricing models when an annualised risk coefficient is required. However, this approach may not be appropriate for time series, which are not independent and identically distributed (IID). This paper investigates the scaling relationships for daily credit spreads, from January 1995 to May 1998, between AAA-, AA-, and A-rated Australian dollar denominated Eurobonds with maturities of 2, 5, 7, and 10 years. The credit spread return all display similar scaling properties with the estimated standard deviation, based upon a scaling at the square root of time, significantly underestimating the actual level of risk predicted from a normal distribution. These results have implications for risk managers and trading of credit spread instruments.

The conceptualisation of operational risk management models

Operational risk is evolving as a specialist field of risk management that must be practiced within all organisations, but currently has a particular relevance to banks. The Basel Committee on Banking Supervision has circulated a consultative paper which, if adopted by nation-state bank supervisors, will impose an operational risk capital charge on banks as part of a new Capital Accord. The definition of operational risk is wide-ranging and creates some unique issues related to the development of appropriate risk management models. This paper conceptualises two distinct operational risk management models; being a predictive model that will result in a known outcome upon its implementation, and a pre-emptive operational risk management model which prepares an organisation in the event that a future risk occurrence results in a disruption to critical business operations.

The conceptualisation of operational risk management models

Operational risk is evolving as a specialist field of risk management that must be practiced within all organisations, but currently has a particular relevance to banks. The Basel Committee on Banking Supervision has circulated a consultative paper which, if adopted by nation-state bank supervisors, will impose an operational risk capital charge on banks as part of a new Capital Accord. The definition of operational risk is wide-ranging and creates some unique issues related to the development of appropriate risk management models. This paper conceptualises two distinct operational risk management models; being a predictive model that will result in a known outcome upon its implementation, and a pre-emptive operational risk management model which prepares an organisation in the event that a future risk occurrence results in a disruption to critical business operations.

Longitudinal evaluation of a risk-factor model for adolescent suicidality

This research developed two best-fitting structural equation models of risk factors for adolescent depression and suicidality: a core model, which included parenting factors, gender, depression, and suicidality, and an extended model, which also encompassed personality traits (Introversion and Impulsivity) and mood factors (Anxiety and Anger). Further, this research investigated the consistency of model fit across time (Le., 1 month & 12 months) and samples, and explored the effectiveness of the ReachOut! Internet site as a psychoeducational prevention strategy for adolescent depression and suicidality. Gender, age, and location differences were also explored. Participants were 185 Year-9 students and 93 Year-10 students aged 14 - 16 years, from seven secondary schools in regional and rural Victoria. Students were given a survey which included the Parental Bonding Instrument (Parker, Tupling, & Brown, 1979), the Millon Adolescent Personality Inventory (Millon, Green, & Meagher, 1982), the Profile of Mood States Inventory (McNair & Lorr, 1964), items on suicidal behaviour including some questions from the Revised Adolescent Suicide Questionnaire (Pearce & Martin, 1994), and questions on loss and general demographics. Results supported an indirect model of risk factors, with family factors directly influencing personality factors, which in turn influenced mood factors, including depression, which then influenced suicidality. At the theoretical level, results supported Attachment Theory (Bowlby, 1969), demonstrating that perceived parenting styles that are warm and not overly controlling are more conducive to an adolescent's emotional well-being than are parenting styles that are cold and controlling. Further, results supported Millon's theory of personality (1981), demonstrating that parenting style influences a child's personality. Short-term intervention effects from the internet site were a decrease in Introversion for the full sample, and decreased Inhibition and Suicidality for a high-risk subgroup. Long-term age effects were decreased Inhibition and increased Anxiety for the fall sample. There was also a probable intervention effect for Depression for the high-risk subgroup. No location differences for the risk factors were found between regional and rural areas.

Institutional and structural forms of HIV-related discrimination in health care : a study set in Beijing

This paper presents key findings of a situational analysis of institutional and structural levels of HIV/AIDS-related discrimination in Beijing, China, with a focus on the area of health care. Initially slow to respond to the presence of HIV, China has altered its approach and enacted strict legislative protection for people living with HIV/AIDS (PLWHA). In order to determine whether this has altered discrimination against PLWHA, this study examined existing legislation and policy, and interviewed key informants working in health care and PLWHA. The overall findings revealed that discrimination in its many forms continued to occur in practice despite China's generally strong legislative protection, and it is the actual practice that is hindering PLWHAs' access to health services. A number of legislative and policy gaps that allow discrimination to occur in practice were also identified and discussed. The paper concludes with a call to rectify specific gaps between legislation, policy and practice. An understanding of the underlying factors that drive discrimination will also be necessary for effective strategic interventions to be developed and implemented.

Turn-around pedagogies: improving the education of at-risk students

Internationally, normative discourses about literacy standards have rapidly proliferated, and spaces for teachers to engage in serious intellectual inquiry seem to be shutting down. Our concern about the impact of these forces on teachers led us to design a cross-generational teacher research project across two states of Australia to tackle some of the toughest challenges teachers face in their workplaces, including the issue of unequal outcomes in literacy achievement. In this article we report on how the project design sustained an intellectual community of inquiry and fostered ‘turn-around pedagogies'. We include excerpts from recent teacher writing (Comber and Kamler, 2005) to illustrate how teachers used technology and popular culture to reengage their most at-risk students. We argue that crossgenerational models of practitioner inquiry hold great promise for improving the learning engagement of students, the productivity of schools and the professional renewal of the teacher workforce.

Corporate codes of ethics in Australia, Canada and USA : measurement and structural properties of a cross-cultural model

The objective is to test the consistency of measurement and structural properties in a model of corporate codes of ethics (CCE) on an aggregated level and across multiple samples derived from three countries, namely Australia, Canada and the USA. The properties of four constructs of CCE are described and tested, these being: surveillance/training, internal communication, external communication, and guidance. The conclusion is that the measurement and structural models on an aggregated level have a satisfactory fit, validity and reliability. Furthermore, they are consistent when tested on each of the three samples (i.e. cross-validated). The cross-cultural model makes a contribution in addition to previous mostly descriptive studies and theory in the field using confirmatory factor analysis and structural equation modeling.

Comparing multiple discrepancies theory to affective models of subjective wellbeing

The Subjective Wellbeing (SWB) literature is replete with competing theories detailing the mechanisms underlying the construction and maintenance of SWB. The current study aimed to compare and contrast two of these approaches: multiple discrepancies theory (MDT) and an affective-cognitive theory of SWB. MDT posits SWB to be the result of perceived discrepancies between multiple standards of comparison. By contrast, affective-cognitive theory asserts that SWB is primarily influenced by trait affect, and indirectly influenced by personality and cognition through trait affect. Participants comprised 387 individuals who responded to the 5th longitudinal survey of the Australian Unity Wellbeing Index. Results of Structural Equation Modelling (SEM) indicated the poorest fit to the data for the MDT model. The affective-cognitive model also did not provide a good fit to the data. A purely affective model provided the best fit to the data, was the most parsimonious, and explained 66% of variance in SWB.

Financial systems and mechanisms of growth in different conditions of country risk

This article uses panel data from 1976 to 2003 to investigate the ways in which banking and stock markets influence economic growth in situations of high and low country risk. The mean and Standard Deviation (SD) of country risk are adopted to classify 28 countries into Low Risk Low Volatility (LRLV) and High Risk High Volatility (HRHV) subgroups. Through the technique of error correction-based panel co-integration developed by Westerlund (2007), several results are obtained. First, LRLV countries can expand the capitalization of stock market to enhance long-term economic growth. Second, HRHV countries, on the other hand, use two distinct strategies to promote long-term economic growth. Initially they develop their equity markets, which promote economic growth directly. Strengthened equity markets, in turn, aid in the development of credit markets, which subsequently brings an economic boom. Finally, regardless of selected subgroups, the contribution of stock market capitalization to economic growth appears to be substantially larger than that of bank credit, highlighting the importance of stock markets.