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Welcome to The IUP Journal of Financial Risk Management


Previous Issues

The IUP Journal of Financial Risk Management is a quarterly journal that focuses on identifying financial risk, risk management models, accounting for derivatives, risk-hedging techniques, asset liability management. The journal provides a platform for cutting edge research in the field of financial risk management.

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Editorial Board
Information to Authors
  • Identifying Financial Risk
  • Risk Management Models
  • Accounting for Derivatives
  • Risk-Hedging Techniques
  • Asset Liability Management
Risk Appetite in Practice: Vulgaris Mathematica
Portfolio Attribution of Large Cap Companies
Risk Anomaly – Empirical Evidence from Indian Stock Market
Modeling and Forecasting of Time-Varying Conditional Volatility
of the Indian Stock Market
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Risk Appetite in Practice: Vulgaris Mathematica

--Bertrand K Hassani

The ultimate goal of risk management is generation of efficient income. The aim is to generate the maximum return for a unit of risk taken or to minimize the risk taken to generate the return expected, i.e., it is the optimization of a financial institution’s strategy. Therefore, by measuring its exposure against its appetite, a financial institution is assessing its coupled risk-return. But this task may be difficult as banks face various types of risks, for instance, operational, market, credit, and liquidity, and these cannot be evaluated on a standalone basis; interaction and contagion effects should be taken into account. In this paper, methodologies to evaluate banks’ exposures are presented along with their management implications, as the purpose of the risk appetite evaluation process is the transformation of risk metrics into effective management decisions.

Article Price : Rs.50

Portfolio Attribution of Large Cap Companies

--Latha Sreeram and Ankita Sarin

Portfolio managers strive to achieve their strategic goals and maximize their return on investments. This study is an analysis of portfolio attribution or how the fund manager decides where to invest and how to manage his customers’ funds. This is possible by creating portfolios based on different strategies and further analyzing the portfolio’s risk and returns. The objective is to gain insights helpful in improving the portfolio management process, its investment decision and strategy from risk and return perspective for achieving the desired investment performance. To attain this objective, the portfolio risk is analyzed on the basis of the multifactor model which features economic factors based on market, fundamental or technical data. This allows the portfolio managers to extend the use of the risk forecast from determining the expected level of risk to explaining where it is coming from and what actions should be taken to bring the portfolio into alignment. For a fundamental model the themes that are important in characterizing the behavior of securities are identified and then the asset exposure is determined. Then, factor volatilities are calculated and specific return and risk are determined. With this information, the asset’s risk as a combination of factor-related risk and specific risk is calculated. Factor-related risk is caused due to the assets exposure to each factor, the volatility and the correlations between factors. The portfolio risk is calculated in a similar manner by substituting portfolio-level exposures for asset-level exposures. Finally, returns of a portfolio are analyzed based on its sources when compared with its risk.

Article Price : Rs.50

Risk Anomaly – Empirical Evidence from Indian Stock Market

--Nehal Joshipura

Finance theory suggests that higher return comes with higher risk. However, several studies have reported the evidences of low-risk anomaly in the US and other global markets, where portfolio of low volatility stocks delivers superior risk-adjusted returns as compared to market index and high volatility stocks’ portfolio. The present study aims to investigate the presence of low-risk anomaly in Indian stock market by using all constituent stocks of S&P CNX 200 index of NSE for the period from January 2004 to August 2013. The CNX 200 index represents about 88.75% of the freefloat market capitalization of the stocks listed on NSE as on June 28, 2013. The study is based on construction of low and high volatility portfolios using volatility of historical monthly returns of stocks and holding portfolios for the next period on iterative basis.

Article Price : Rs.50

Modeling and Forecasting of Time-Varying Conditional Volatility of the Indian Stock Market

--P Srinivasan

Volatility forecasting is an important area of research in financial markets and immense effort has been expended in improving volatility models since better forecasts translate themselves into better pricing of options and better risk management. In this direction, the present paper attempts to model and forecast the volatility (conditional variance) of the S&P CNX Nifty index returns of Indian stock market, using daily data for the period from January 1, 1996 to January 29, 2010. The forecasting models that are considered in this study range from the simple GARCH(1, 1) model to relatively complex GARCH models, including the Exponential GARCH(1, 1) and Threshold GARCH(1, 1) models. Based on out-of-sample forecasts and a majority of evaluation measures, the results show that the asymmetric GARCH models do perform better in forecasting conditional variance of the Nifty returns rather than the symmetric GARCH model, confirming the presence of leverage effect. The findings are consistent with those of Banerjee and Sarkar (2006) that relatively asymmetric GARCH models are superior in forecasting the conditional variance of Indian stock market returns rather than the parsimonious symmetric GARCH models.

Article Price : Rs.50



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Automated Teller Machines (ATMs): The Changing Face of Banking in India

Bank Management
Information and communication technology has changed the way in which banks provide services to its customers. These days the customers are able to perform their routine banking transactions without even entering the bank premises. ATM is one such development in recent years, which provides remote banking services all over the world, including India. This paper analyzes the development of this self-service banking in India based on the secondary data.

The Information and Communication Technology (ICT) is playing a very important role in the progress and advancement in almost all walks of life. The deregulated environment has provided an opportunity to restructure the means and methods of delivery of services in many areas, including the banking sector. The ICT has been a focused issue in the past two decades in Indian banking. In fact, ICTs are enabling the banks to change the way in which they are functioning. Improved customer service has become very important for the very survival and growth of banking sector in the reforms era. The technological advancements, deregulations, and intense competition due to the entry of private sector and foreign banks have altered the face of banking from one of mere intermediation to one of provider of quick, efficient and customer-friendly services. With the introduction and adoption of ICT in the banking sector, the customers are fast moving away from the traditional branch banking system to the convenient and comfort of virtual banking. The most important virtual banking services are phone banking, mobile banking, Internet banking and ATM banking. These electronic channels have enhanced the delivery of banking services accurately and efficiently to the customers. The ATMs are an important part of a bank’s alternative channel to reach the customers, to showcase products and services and to create brand awareness. This is reflected in the increase in the number of ATMs all over the world. ATM is one of the most widely used remote banking services all over the world, including India. This paper analyzes the growth of ATMs of different bank groups in India.
International Scenario

If ATMs are largely available over geographically dispersed areas, the benefit from using an ATM will increase as customers will be able to access their bank accounts from any geographic location. This would imply that the value of an ATM network increases with the number of available ATM locations, and the value of a bank network to a customer will be determined in part by the final network size of the banking system. The statistical information on the growth of branches and ATM network in select countries.

Indian Scenario

The financial services industry in India has witnessed a phenomenal growth, diversification and specialization since the initiation of financial sector reforms in 1991. Greater customer orientation is the only way to retain customer loyalty and withstand competition in the liberalized world. In a market-driven strategy of development, customer preference is of paramount importance in any economy. Gone are the days when customers used to come to the doorsteps of banks. Now the banks are required to chase the customers; only those banks which are customercentric and extremely focused on the needs of their clients can succeed in their business today.