An asymptotic test for the Conditional Value-at-Risk

Conditional Value-at-Risk (equivalent to the Expected Shortfall, Tail Value-at-Risk and Tail Conditional Expectation in the case of continuous probability distributions) is an increasingly popular risk measure in the fields of actuarial science, banking and finance, and arguably a more suitable alternative to the currently widespread Value-at-Risk. In my paper, I present a brief literature survey, and propose a statistical test of the location of the CVaR, which may be applied by practising actuaries to test whether CVaR-based capital levels are in line with observed data. Finally, I conclude with numerical experiments and some questions for future research.

"Értelem és érzelem" A lakossági ügyfelek gazdasági magatartása és a bankokkal kapcsolatos attitűdjei ("Sense and sensibility" Retail customer behaviours and attitudes towards banks)

A globális pénzügyi és világgazdasági válság sok szempontból újszerű versenyhelyzetet teremtett a lakossági banki piacon az ügyfelek megtartása és az új ügyfelek megszerzése terén. A gazdasági és társadalmi környezetben bekövetkezett változásokhoz való alkalmazkodás sikeressége érdekében fontos a banki ügyfelek gazdasági viselkedésmódjának alaposabb és mélyrehatóbb megértése. Tanulmányunkban bemutatjuk azokat a főbb, releváns pszichológiai, szociológiai és gazdasági tényezőket, amelyek az ügyfelek bankokkal kapcsolatos magatartását és attitűdjeit befolyásolják. A vonatkozó elméleteket és kutatásokat egy konceptuális keretben foglaljuk össze; ennek az alappilléreit a bizalom, a pénzzel kapcsolatos attitűdök és az emocionális komponensek alkotják. _______ The global fi nancial and economic crisis created new competition in the market for retail banking, and in the areas of existing customer retention and new customers’ acquisition. The corresponding economic and social change called for new adaptive strategies on behalf of banks to better understand the economic behaviour of their customers. This paper focuses on certain relevant psychological, sociological and economic factors that tend to characterize customer behaviours and attitudes towards banks. With particular emphasis on highlighting the potential implications of relevant theories for the purposes of banks, our conceptual model incorporates elements of trust, monetary attitudes and underlying emotional components.

The risk of adverse selection and its management in the process of venture capital investment (The experience of Hungarian investors)

Venture capitalists can be regarded as financers of young, high-risk enterprises, seeking investments with a high growth potential and offering professional support above and beyond their capital investment. The aim of this study is to analyse the occurrence of information asymmetry between venture capital investors and entrepreneurs, with special regard to the problem of adverse selection. In the course of my empirical research, I conducted in-depth interviews with 10 venture capital investors. The aim of the research was to elicit their opinions about the situation regarding information asymmetry, how they deal with problems arising from adverse selection, and what measures they take to manage these within the investment process. In the interviews we also touched upon how investors evaluate state intervention, and how much they believe company managers are influenced by state support.

The financial stability and access to financing of SMEs in Hungary

The present study was prepared within the framework of cooperation between the Competitiveness Research Centre, operating within the Institute of Business Economics of Corvinus University of Budapest, and the National Association of Entrepreneurs, based on a commission from the latter. Th e goal of the study was to survey the self-financing capabilities and borrowing opportunities of majority Hungarian-owned small and medium-sized enterprises (SMEs), and to identify potential problems. The results of the research revealed that the high proportion of owner’s equity in the financing structure is not due to difficulties with borrowing, but because enterprises that cover their fi nancing primarily from their own resources have other financing opportunities at their disposal. Although general satisfaction with banks shows a diminishing tendency, it can still be interpreted favourably. The majority of companies have not encountered serious borrowing difficulties. With regard to the system of competitive tenders, company managers have sensed some improvement, but general satisfaction is still lacking. Although the research results suggest that the primary obstacle to growth in 2013 was not the lack of credit or external funding, it is important to emphasize that start-ups, young enterprises and micro-enterprises, which struggle the most with financing worries, were not represented in the analysed database.

Spirituality and business: An interdisciplinary overview

The paper gives an interdisciplinary overview of the emerging field of spirituality and business. It uses insights from business ethics, theology, neuroscience, psychology, gender studies, and philosophy to economics, management, organizational science, and banking and refers to different religious convictions including Christianity, Judaism, Islam, Hinduism, Buddhism, Confucianism, the Baha'i faith, and the North-American aboriginal worldview. The authors argue that the materialistic management paradigm has failed. They explore new values for post-materialistic management: frugality, deep ecology, trust, reciprocity, responsibility for future generations, and authenticity. Within this framework profit and growth are no longer ultimate aims but elements in a wider set of values. Similarly, cost-benefit calculations are no longer the essence of management but are part of a broader concept of wisdom in leadership. Spirit-driven businesses require intrinsic motivation for serving the common good and using holistic evaluation schemes for measuring success. The Palgrave Handbook of Business and Spirituality, edited by the authors, is a response to developments that simultaneously challenge the “business as usual” mindset.

A temporary loss of pace or the "middle income trap" - a commentary on the tasks for Hungary's economic development

The latest Hungarian economic growth data, though favourable, do not let us forget that in the longer term growth is weak compared to the preceding period – as well as to the performance of the East-Central European region, which is more dynamic than the European average. In order to make sense of the past decade’s relative loss of pace and lay the foundations for future development policy, it is worth placing Hungary’s case in the context of the slowing tempo typical of middle-income countries. The economic development policies currently pursued by the government are aimed at increasing output in the processing industry, and by extension exports, while relevant international experience advises that it is the higher value-added activities of the global value chain, particularly business services, which should be developed further. In this way real wages and income levels could be increased, and the economy would be less exposed to the fluctuations of international cycles.

Hedging under liquidity constraints

Although risk management can be justified by financial distress, the theoretical models usually contain hedging instruments free of funding risk. In practice, management of the counterparty risk in derivative transactions is of enhanced importance, consequently not only is trading on exchanges subject to the presence of a margin account, but also in bilateral (OTC) agreements parties will require margins or collateral from their partners in order to hedge the mark-tomarket loss of the transaction. The aim of this paper is to present and compare two models where the financing need of the hedging instrument also appears, influencing the hedging strategy and the optimal hedging ratio. Both models contain the same source of risk and optimisation criterion, but the liquidity risk is modelled in different ways. In the first model, there is no additional financing resource that can be used to finance the margin account in case of a margin call, which entails the risk of liquidation of the hedging position. In the second model, the financing is available but a given credit spread is to be paid for this, so hedging can become costly.

Some fairytales about risk management

When I started writing this paper, I thought I would only be writing about the parallel between the mathematical theory of inventory and production – as a familiar model of operations research – and liquidity management. And then during the writing process, predictably enough I must say, the scandals surrounding the Buda-Cash and Quaestor brokerages erupted. Likewise in this period, the debate about foreign currency lending gained fresh impetus; about who made which mistakes when, or whether there was anyone who didn’t make mistakes. The most surprising twist revealed in the Buda-Cash and Quaestor cases – beyond alleged losses running into several hundreds of billions of forints – was that all this could be accumulated in 15 years of selfless effort. And even if this information proves to be comment born of initial over-excitement, it still demands an explanation one way or another. If it’s true, then how can this be? And if it isn’t, then what made it appear as if this is what happened? The questions and contradictions are obvious. But the main questions are these: What do risk managers actually do? What do we pay them for? And how far can we trust them?