Computational Risk Management Series Editors DeshengDashWu DavidL.Olson JohnR.Birge Forfurthervolumes: http://www.springer.com/series/8827 . Desheng Dash Wu Editor Quantitative Financial Risk Management Editor DeshengDashWu UniversityofToronto Risklab SpadinaCrescent1 M5S3G3TorontoOntario Canada [email protected] ISSN2191-1436 e-ISSN2191-1444 ISBN978-3-642-19338-5 e-ISBN978-3-642-19339-2 DOI10.1007/978-3-642-19339-2 SpringerHeidelbergDordrechtLondonNewYork LibraryofCongressControlNumber:2011930728 #Springer-VerlagBerlinHeidelberg2011 Thisworkissubjecttocopyright.Allrightsarereserved,whetherthewholeorpartofthematerialis concerned,specificallytherightsoftranslation,reprinting,reuseofillustrations,recitation,broadcasting, reproductiononmicrofilmorinanyotherway,andstorageindatabanks.Duplicationofthispublication orpartsthereofispermittedonlyundertheprovisionsoftheGermanCopyrightLawofSeptember9, 1965,initscurrentversion,andpermissionforusemustalwaysbeobtainedfromSpringer.Violations areliabletoprosecutionundertheGermanCopyrightLaw. Theuseofgeneraldescriptivenames,registerednames,trademarks,etc.inthispublicationdoesnot imply, even in the absence of a specific statement, that such names are exempt from the relevant protectivelawsandregulationsandthereforefreeforgeneraluse. Coverdesign:SPiPublisherServices Printedonacid-freepaper SpringerispartofSpringerScience+BusinessMedia(www.springer.com) Preface Thepastfinancialdisastershaveledtoagreatdealofemphasisonvariousformsof riskmanagementsuchasmarketrisk,creditriskandoperationalriskmanagement. Financialinstitutionssuchasbanksandinsurancecompaniesarefurthermotivated by the need to meet various regulatory tendency toward an integrated or holistic viewofrisks. InUSA,theGlobalAssociationofRiskProfessionals(GARP),andtheProfes- sional Risk Managers’ International Association (PRMIA) were established since 1996 and 2002 respectively. In Canada, the Government of Canada, the Govern- ment of Ontario and financial sector leaders recently launched the Global Risk Institute in Financial Services (GRi) in Toronto, with the aim of T building on Canada’sgrowingreputationinfinancialriskmanagement. Enterprise risk management (ERM) is an integrated approach to achieving the enterprise’sstrategic,programmatic,andfinancialobjectiveswithacceptablerisk. ERMgeneralizestheseconceptsbeyondfinancialriskstoincludeallkindsofrisks. Enterprise risk management has been deemed as an effective risk management philosophy. We have tried to discuss different aspects of risk, to include finance, information systems, disaster management, and supply chain perspectives (Olson andWu2008a,b,2010). Thebulkofthisvolumeisdevotedtoaddressfourmainaspectsofriskmanage- ment:market risk,creditrisk,riskmanagement fromboth inmacro-economy and enterprises. It presents a number of modeling approaches and case studies that havebeen(orcouldbe)appliedtoachieveriskmanagementinvariousenterprises. WeincludetraditionalmarketandcreditriskmanagementmodelssuchasBlack– Scholes Option Pricing Model, Vasicek Model, Factor models, CAPM models, GARCH models, KMV models and credit scoring models; We also include advanced mathematical techniques such as regime-Switching models to address systematic risk, H-P Filtration techniques tomanage energy risks. New enterprise riskssuchassupplychainriskmanagementarealsowellstudiedbyafewauthorsin this volume. We hope that this book provides some view of how models can be appliedbymorereadersaimingtoachievequantitativefinancialriskmanagement. TorontoONCanada DeshengDashWu November2010 v vi Preface References OlsonDL,WuD(2008a)Enterpriseriskmanagement.WorldScientific,Singapore OlsonDL,WuD(2008b)Newfrontiersinriskmanagement.Springer,Heidelberg OlsonDL,WuD(2010)Enterpriseriskmanagementmodels.Springer,Heidelberg Contents PartI MarketRiskManagement EmpiricalAnalysisofRiskMeasurementofChineseMutualFunds ...... 3 JuYang AssesstheImpactofAssetPriceShocksontheBankingSystem ......... 15 YuanFang-Ying ComparativeStudyonMinimizingtheRiskofOptions forHedgeRatioModelofFutures ........................................... 29 LuoWenhui TheApplicationofOptionPricingTheoryinParticipating LifeInsurancePricingBasedOnVasicekModel ........................... 39 DanweiQiu,YueHu,andLifangWang TheStudyofApplyingBlack-ScholesOptionPricingModel totheTermLifeInsurance ................................................... 47 LifangWang,YueHu,andDanweiQiu EvolutionaryVariationofServiceTradeBarriersinBanking: ACaseofASEAN+3 .......................................................... 55 XiaobingFeng CorporateBoardGovernanceandRiskTaking ............................ 63 ShenglanChen TheRiskFactorsAnalysisoftheTermStructureofInterestRate intheInterbankBondMarket ............................................... 71 YujunYang,HuiHuang,andJingPang vii viii Contents PricingofConvertibleBondBasedonGARCHModel .................... 77 MengxianWangandYuanLi SentimentCapitalAssetCognitivePriceandEmpiricalEvidence fromChina’sStockMarket .................................................. 87 WeiYan,ChunpengYang,andJunXie CarbonEmissionMarkets .................................................... 95 WalidMnifandMattDavison PartII CreditRiskManagement DynamicAssetAllocationwithCreditRisk ................................ 111 BianShiboandZhangXiaoyang AnalysisoftheFactorsInfluencingCreditRisk ofCommercialBanks ........................................................ 123 TaoAiyuanandZhaoSihong TheCreditRiskMeasurementofChina’sListedCompaniesBased ontheKMVModel ........................................................... 137 ZhangPiqiangandZhouHancheng ConsumerCreditRiskResearchBasedonOurMacroeconomic Environment .................................................................. 161 ZhuNingandShiQiongyao WealthEffectsoftheCreditorinMergers:EvidencefromChinese ListedCompanies ............................................................ 173 ZhihuiGuandXiangchaoHao PartIII RiskManagementinEnterprises ResearchontheEconomyFluctuationswithEnergyConsumption ofChinaBasedonH-PFiltration ............................................ 191 HuaWei,HaiyanTang,ShanWu,andYaqunHe EnterpriseRiskAssessmentandForecast:BasedonChineseListed Companiesin2009–2010 .................................................... 201 ShaoJun,WangShuangcheng,andLiuYanping ThePreventionandControlofEnvironmentalLiabilityBasedon EnvironmentalRiskManagementandAssessmentinEnterprise ....... 217 ZhifangZhouandXuXiao Contents ix SupplyChainRiskManagementReviewandaNewFramework forPetroleumSupplyChains ............................................... 227 Lea˜oJose´ Fernandes,AnaPaulaBarbosa-Po´voa,andSusanaRelvas TowardsaSupplyRiskManagementCapabilityProcessModel: AnAnalysisofWhatConstitutesExcellenceinSupplyRisk ManagementAcrossDifferentIndustrySectors ........................... 265 KaiFo¨rstl,ConstantinBlome,MichaelHenke,andTobiasScho¨nherr EnterpriseRiskManagementfromTheorytoPractice: TheRoleofDynamicCapabilitiesApproach–the“Spring”Model ..... 281 AmerigoSilvestri,MarikaArena,EnricoCagno,PaoloTrucco, andGiovanniAzzone PartIV RiskManagementinMacro-economy RiskIndexofChina’sMacroeconomicOperation:Method andApplication ............................................................... 311 WangShuzhenandJiaDekui SystemicRisk ................................................................. 321 JohannesHauptmannandRudiZagst