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Globalization, Gating, and Risk Finance

Book Description

An in-depth guide to global and risk finance based on financial models and data-based issues that confront global financial managers.

Globalization, Gating, and Risk Finance offers perspectives on global risk finance in a world with economies in transition. Developed from lectures and research projects investigating the consequences of globalization and strategic approaches to fundamental economics and finance, it provides an approach based on financial models and data; it includes many case-study problems. The book departs from the traditional macroeconomic and financial approaches to global and strategic risk finance, where economic power and geopolitical issues are intermingled to create complex and forward-looking financial systems.

Chapter coverage includes: Globalization: Economies in Collision; Data, Measurements, and Global Finance; Global Finance: Utility, Financial Consumption, and Asset Pricing; Macroeconomics, Foreign Exchange, and Global Finance; Foreign Exchange Models and Prices; Asia: Financial Environment and Risks; Financial Currency Pricing, Swaps, Derivatives, and Complete Markets; Credit Risk and International Debt; Globalization and Trade: A Changing World; and Compliance and Financial Regulation.

  • Provides a framework for global financial and inclusive models, some of which are not commonly covered in other books.
  • Considers risk management, utility, and utility-based multi-agent financial theories.
  • Presents a theoretical framework to assist with a variety of problems ranging from derivatives and FX pricing to bond default to trade and strategic regulation.
  • Provides detailed explanations and mathematical proofs to aid the readers’ understanding.

Globalization, Gating, and Risk Finance is appropriate as a text for graduate students of global finance, general finance, financial engineering, and international economics, and for practitioners.

Table of Contents

  1. Cover
  2. Title Page
  3. Chapters' Outline
    1. Acknowledgments
  4. Motivation
    1. Our Approach
    2. References
  5. About the Authors
  6. 1 Globalization
    1. Motivation
    2. 1.1 Introduction
    3. 1.2 Trend and Challenges in Global Finance
    4. 1.3 Global Finance and Trade in the Media and News
    5. 1.4 Global Risks
    6. 1.5 Global Finance, Swaps and Financial Products
    7. 1.6 Currencies and Liquidity
    8. 1.7 Foreign Exchange Regime and Markets, Global Payment, and Reserve Currency
    9. 1.8 Trade Incentives and Repression
    10. 1.9 Historical Evolution
    11. 1.10 Archaic and Modern Globalization: A Time Path
    12. 1.11 Discussions on Global Issues
    13. References
  7. 2 Data, Measurements, and Global Finance
    1. Motivation
    2. 2.1 Data and Models
    3. 2.2 Global Finance, Data Reduction, and Statistical Measurements
    4. 2.3 Volatility and Implied Models Estimates
    5. 2.4 Stochastic Models
    6. 2.5 Multivariate Probability Models
    7. 2.6 Statistical Data Reduction
    8. 2.7 Complexity: The Global Risk Finance Scourge
    9. 2.8 Discussion
    10. References
  8. 3 Global Finance
    1. Motivation
    2. 3.1 Introduction: Financial Models and Pricing
    3. 3.2 Review: Elements of Utility and Risk
    4. 3.3 The Utility of Consumption and its Price
    5. 3.4 The Capital Asset Pricing Model
    6. 3.5 Review of Elements of Arrow–Debreu and Q Pricing
    7. 3.6 The Multi‐Period Consumption‐Based Capital Asset Pricing Model
    8. 3.7 Thought Experiments
    9. References
  9. 4 Macroeconomics, Foreign Exchange, and Global Finance
    1. Motivation
    2. 4.1 Introduction
    3. 4.2 Fundamental Macroeconomic Models
    4. 4.3 Balance of Payments Accounts
    5. 4.4 The Mundell and Fleming Model: IS–LM–BOP Model
    6. 4.5 Macroeconomic Factors Reshaping Global Outlook
    7. 4.6 Conclusion
    8. References
  10. 5 Foreign Exchange Models and Prices
    1. Motivation
    2. 5.1 Introduction
    3. 5.2 Macroeconomic Models of Foreign Exchange Rates
    4. 5.3 Exchange Rates and Purchasing Power Parity
    5. 5.4 Foreign Exchange Rates and Interest Rates: The Assets Approach
    6. 5.5 Demand and Supply of Money and Exchange Rates: Monetary Approach
    7. 5.6 Extensions of the Models
    8. 5.7 Conclusions
    9. Appendix 5.A: Suggested Empirical Work for Econometric and Statistical Analysis
    10. References
  11. 6 Asia
    1. Motivation
    2. 6.1 Introduction
    3. 6.2 Driving Engines of Economic Growth in Asia
    4. 6.3 Financial Sector Development in Asia
    5. 6.4 Risks of Investing in Asia
    6. 6.5 Financial Development in China
    7. 6.6 Finance in Japan
    8. 6.7 Conclusion
    9. References
  12. 7 Financial Currency Pricing, Swaps, Derivatives, and Complete Markets
    1. Motivation
    2. 7.1 Introduction
    3. 7.2 The Consumption Price Index and Foreign Exchange in Complete Financial Markets
    4. 7.3 A Generalized Consumption Price Index Foreign Exchange Pricing Model
    5. 7.4 Relative and Foreign Exchange Basket Price Tracking
    6. 7.5 Options Pricing: Applications and Examples
    7. 7.6 Spread and Two‐Factor Options
    8. 7.7 Optional Trading Strategies
    9. 7.8 The Greeks and Financial Risk Management
    10. Appendix 7.A: Mathematical Review
    11. 7.A.2 The Feynman–Kac Formula
    12. 7.A.3 Stochastic Integral and Quadratic Variations (Benhamou, 2007)
    13. 7.A.4 Pricing, the Radon–Nykodim Derivative and Girsanov Theorem
    14. 7.A.5 Reducing a Dependent Vector to be Independent
    15. References
  13. 8 Credit Risk and International Debt
    1. Motivation
    2. 8.1 Introduction
    3. 8.2 Growth of Debt and Debt Dependency
    4. 8.3 Foreign Exchange is a Credit Bestowed to a Sovereign Entity
    5. 8.4 Credit and Global Risks
    6. 8.5 Credit Risk, Credit Derivatives, and Credit Default Swaps
    7. 8.6 Swaps
    8. 8.7 Credit Default Swaps and Securitized Volatility
    9. 8.8 Pricing Credit Risk
    10. 8.9 Debt, The Merton Model, and Default
    11. References
  14. 9 Globalization and Trade
    1. Motivation
    2. 9.1 Introduction
    3. 9.2 Tracking Trade and Globalization
    4. 9.3 Strategic Trade and Gating
    5. 9.4 A Multi‐Country Utility of Financial Consumption
    6. 9.5 The Demand Sector and its Supply
    7. 9.6 Conclusions
    8. References
  15. 10 Compliance and Financial Regulation
    1. Motivation
    2. 10.1 Introduction
    3. 10.2 Regulation Risks
    4. 10.3 Regulation, Technology, and Compliance
    5. 10.4 Statistical and Compliance Risks
    6. 10.5 A Multivariate Bernoulli Compliance and Audits
    7. 10.6 Regulation and Compliance Games
    8. 10.7 Satisficing Games and Regulation–Compliance
    9. 10.8 Conclusion
    10. Appendix 10.A: Games, Risk and Uncertainty
    11. Appendix 10.B: Concepts of Games and Risk
    12. References
  16. Index
  17. End User License Agreement