Purpose – The purpose of this paper is to present a realistic hedging model. Design/methodology/approach – The paper uses a general utility function, general distributions, and a multiple‐input technology. Findings – The study finds that the impact of one or both risks on the optimal...

Purpose – Firms grant non‐tradable stock options to their employees as an incentive device. Is the cost of issuing these options equal to the amount the company would receive if it sold the same options to outside investors? The evaluation of this cost is the main objective of this article....

Purpose – The purpose of the paper is to correct a commonly mistaken notion that an Asian option is always cheaper than its plain vanilla European counterpart in a general setting. Design/methodology/approach – The paper shows that by letting volatility go to zero, the lower bounds of Asian...

Purpose – Country alpha swaps are proposed to facilitate emerging market risk‐sharing, even during global financial crises. Country alphas measure risk‐adjusted performance by subtracting the product of average world index returns and the country's beta, measuring its contribution to...

Purpose – This paper seeks to discuss a modeling tool for explaining credit‐risk contagion in credit portfolios. Design/methodology/approach – Presents a “collective risk” model that models the credit risk of a portfolio, an approach typical of insurance mathematics. Findings – ACD...

Purpose – The purpose of this editorial is to study the relationship between the pure risks of insurance and the speculative risks of other financial markets in the context of financial services “convergence”. Design/methodology/approach – The editorial recasts the difference between...

Purpose – The paper aims to provide a quantitative methodology for dealing with (true) Knightian uncertainty in the management of credit risk based on information‐gap decision theory. Design/methodology/approach – Credit risk management assigns clients to credit risk categories with...

Purpose – The purpose of this paper is to consider the problem of using the Value‐at‐Risk (VaR) technique and examine its practical implementation by Swiss Private Banks. Design/methodology/approach – The paper is based on a survey originally undertaken in 2003 and updated in 2005. The...

Purpose – In recent years, the financial system has been changing rapidly. At the same time, macroeconomic volatility has fallen in developed countries. The purpose of this paper is to examine how these developments may have affected the nature of systemic crises. The paper also aims to...

Purpose – It is the purpose of this article to empirically test the risk parameters for larger foreign‐exchange portfolios and to suggest real‐world policies and procedures for the management of market risk with the aid of value at risk (VaR) methodology. The aim of this article is to fill...