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Article
Publication date: 31 May 2010

Hwa-Sung Kim and Kwangil Bae

The previous studies on coskewness and cokurtosis between assets concentrate on the effects of coskewness and cokurtosis on the returns and prices of financial assets. This paper…

25

Abstract

The previous studies on coskewness and cokurtosis between assets concentrate on the effects of coskewness and cokurtosis on the returns and prices of financial assets. This paper explores the default correlation in the presence of coskewness and cokurtosis between two firm values. In doing so, we extend the structural model of Merton (1974) to incorporate coskewness and cokurtosis. We can observe some findings as follows. First, there are no significant effects of skewness and kurtosis associated with each individual firm return on default correlation. Second, the lower coskewness (or the higher cokurtosis) is, the larger default correlations are. But we can observe the opposite result for the firms with low credit rating as the maturity gets longer.

Details

Journal of Derivatives and Quantitative Studies, vol. 18 no. 2
Type: Research Article
ISSN: 2713-6647

Keywords

Available. Open Access. Open Access
Article
Publication date: 31 August 2010

Hwa-Sung Kim

The recent financial crisis has triggered more studies on counterparty risks. The theoretical research on credit risk with counterparty risks has been built based upon the…

32

Abstract

The recent financial crisis has triggered more studies on counterparty risks. The theoretical research on credit risk with counterparty risks has been built based upon the reduced-form model. In contrast, this paper suggests a structural model where firm value can be reduced due to counterparty risks. After deriving a price formula for corporate bonds, we analyze the credit spreads of the corporate bonds. The effects of the counterparty risk on credit spreads are as follows: First, regardless of the level of the counterparty's credit rating, the credit spreads of a firm increase because of counterparty risks. Second, the lower the counterparty's credit rating, the stronger the impact of either the correlation between the two firms on credit spreads, or the coefficient of reduction in firm value due to counterparty risks on credit spreads. Third, compared with existing structural models, there are some cases in which the structural model with counterparty risks is more consistent with actual credit spreads. These cases depend upon the counterparty's credit rating.

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Journal of Derivatives and Quantitative Studies, vol. 18 no. 3
Type: Research Article
ISSN: 2713-6647

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Available. Open Access. Open Access
Article
Publication date: 28 February 2009

Hwa-Sung Kim

The previous theoretical studies on default correlations analyze them only when the firm value moves continuously. Unlike these researches, this paper examines them when the firm…

5

Abstract

The previous theoretical studies on default correlations analyze them only when the firm value moves continuously. Unlike these researches, this paper examines them when the firm value is exposed to jump risks and these jump risks between firms are correlated. Under these conditions, the effects of the correlated jump risks on default correlations are the followings. First, as stated in the previous study, this paper also states that the default correlations increase and then decrease with time. Second, there is a big difference between the existing study and this paper in the aspect of the firms' credit qualities. In the previous study, over a long horizon, default correlations of lower credit qualities of firms are lower than those of higher credit qualities of firms. However, under the jump-diffusion model we are able to obtain the opposite result to the previous study, which is that the jump-diffusion model is consistent with the empirical study in the case of lower credit qualities of firms. Third, on default correlations between the speculative graded firms over a long horizon, this paper is more consistent with the empirical results rather than the previous theoretical study. On contrary, on default correlations between the investment graded firms over a short horizon, the result is completely the opposite. Finally, in contrast to the diffusion model of Merton (1974) where default correlations over a short period are insignificant, default correlations under the jump-diffusion model may be consistent with the empirical results due to correlated jump risks.

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Journal of Derivatives and Quantitative Studies, vol. 17 no. 1
Type: Research Article
ISSN: 2713-6647

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Available. Open Access. Open Access
Article
Publication date: 7 September 2021

Wenwen Jiang and Hwa-Sung Kim

The authors show that there is a negative relationship between economic policy uncertainty (EPU) and firm overinvestment using Korean data from 2007 to 2016. Since Jensen (1986…

1128

Abstract

The authors show that there is a negative relationship between economic policy uncertainty (EPU) and firm overinvestment using Korean data from 2007 to 2016. Since Jensen (1986) shows that a firm's free cash flow is an important factor of overinvestment, the authors examine how free cash flow influences the sensitivity of overinvestment to EPU. The authors find that a high level of free cash flow attenuates the negative effect of EPU on overinvestment. The authors find that there is no significant difference in the effect of EPU on overinvestment between Chaebol (Korean family-run conglomerates) and non-Chaebol firms, which is consistent with the literature that the features of Chaebol are weakening.

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Journal of Derivatives and Quantitative Studies: 선물연구, vol. 29 no. 4
Type: Research Article
ISSN: 1229-988X

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Available. Open Access. Open Access
Article
Publication date: 21 February 2022

Kwangil Bae

The author investigates realized comoments that overcome the drawback of conventional ones and derive the following findings. First, the author proves that (even generalized…

402

Abstract

The author investigates realized comoments that overcome the drawback of conventional ones and derive the following findings. First, the author proves that (even generalized) geometric implied lower-order comoments yield neither geometric realized third comoment nor fourth moment. This is in contrast to previous studies that produce geometric realized third moment and arithmetic realized higher-order moments through lower-order implied moments. Second, arithmetic realized joint cumulants are obtained through complete Bell polynomials of lower-order joint cumulants. This study’s realized measures are unbiased estimators and they can, therefore, overcome the drawbacks of conventional realized measures.

Details

Journal of Derivatives and Quantitative Studies: 선물연구, vol. 30 no. 2
Type: Research Article
ISSN: 1229-988X

Keywords

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Article
Publication date: 11 July 2016

Wonjun Chung, Jinbong Choi, Chang Wan Woo, Soobum Lee and Christina E. Saindon

This paper investigates whether building a nuclear power plant in a community would inherently bring local conflict phenomena such as “not in my back yard (NIMBY)”, focusing…

2152

Abstract

Purpose

This paper investigates whether building a nuclear power plant in a community would inherently bring local conflict phenomena such as “not in my back yard (NIMBY)”, focusing especially on the interactive effect between different types of local publics and their exposure to either a supportive or opposing message about a hypothetical local governmental plan to build a nuclear power plant on community participation intentions.

Design/methodology/approach

Applying the two theoretical frameworks (situational theory of publics and social exchange theory) to NIMBY, this study used a quantitative approach by using 471 participants in a 4 (publics: active, aware, aroused or inactive) × 2 (advocacy message type: supportive or opposing message) experimental design.

Findings

The results showed that regardless of message types, active publics were more likely to participate in community activities than any other public, but this group strongly opposed the harmful facility, while inactive publics continued to be inactive. However, aware and aroused publics were significantly influenced by messages.

Originality/value

The rationale and findings of this research are original, as they have not been published previously, and are not being simultaneously submitted elsewhere. This research should contribute to the broad body of knowledge and practices in community-based conflict issues in terms of risk management. It is believed that the discussion and implications of the findings should raise interesting areas for further research.

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