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Welcome to The IUP Journal of Financial Risk Management

Mar'14

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
Articles
   
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Liquidity Regulatory Framework of Basel III: A Simulation Model for Balance Sheets and Profit and Loss Accounts
Policy Lapsation Risk and Technical Efficiency: Evidence from Indian Life Insurance Sector
The Longevity Risk of Life Insurance Policies Induced by Pricing Error
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Contents
(Mar'14)

Liquidity Regulatory Framework of Basel III: A Simulation Model for Balance Sheets and Profit and Loss Accounts

--Enrico Geretto

The aim of this paper is to construct a model capable of generating a balance sheet in compliance with Basel III rules without jeopardizing profitability. The model’s flexibility is such that all the input hypotheses in the spreadsheet can be changed, with immediate generation of a new balance sheet and profit and loss account. It is thus possible to simulate the impacts of different management choices on the bank’s overall situation. In particular, the model makes it possible to test the conditions which will enable the intermediary to overcome temporary challenging situations in the interbank market and preserve its financial equilibrium.

Article Price : Rs.50

Policy Lapsation Risk and Technical Efficiency: Evidence from Indian Life Insurance Sector

--Ram Pratap Sinha

The life insurance sector suffers from the problem of policy lapsation which is an undesirable output in the context of this sector. The present paper makes a humble attempt to integrate lapsation risk in the context of efficiency analysis of the Indian life insurance sector for the period 2005-06 to 2009-10. For the purpose of efficiency measurement, the paper uses the undesirable output model proposed by Tone (2003), and includes policy lapsation as an undesirable output.

Article Price : Rs.50

The Longevity Risk of Life Insurance Policies Induced by Pricing Error

--Ya-Wen Hwang and Chenghsien Tsai

Compounded Increasing Whole Life Insurance Policies (CIWLIPs) have underpricing and underreserving problems, which are aggravated by mortality improvements. This paper illustrates these problems by analyzing the accumulated surplus, and subsequently, applying the Lee-Carter model to quantify the longevity risk. In order to quantify the risk of the CIWLIPs, a standard formula is proposed to calculate the risk-based capital requirements of insurance risk and estimate the associated risk factor. The findings reveal that the product incurs significant underpricing and underreserving problems whenever actuaries fail to take full account of the product characteristics, and mortality improvements further aggravate these problems. The insurance risk factor for this type of policies is significantly larger than that of traditional whole life insurance policies and the risk factor decreases when the product characteristics are appropriately considered. Therefore, it is suggested that insurance regulators should ensure that the product characteristics as well as mortality improvements are appropriately considered in pricing and reserving.

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.

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