• Journal of Convergence for Information Technology
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• v.9 no.12
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• pp.133-140
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• 2019

This study examines the reason of a staggering trade deficit on the Korean agro-food industry. To achieve the goal of the study, this study suggests the policy implication for enlargement a trade deficit with foreign exchange rate. Despite the majority of grain importer does realize that there is a huge affection for price volatility on the business result, they are more likely to take flat pricing through the physical market to avoid risk of price volatility with exchange rate. Also the analysis of external and internal environments around the Korean agro-food export & import are conducted, particularly with the analysis of trade volume and food price affecting the export & import. Results from a survey show that the common factor to the effective use of overseas agricultural and foreign currency futures trading for grain traders in Korea.

• Journal of Navigation and Port Research
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• v.46 no.4
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• pp.359-366
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• 2022

While the Forward Freight Agreement (FFA) has emerged as an effective hedging tool since early 1990, the basis risk and cash flow distortions have been addressed as obstacles to the active use of FFAs. This research analyses the basis risk of FFAs and provides a feasible suggestion to reduce it. Basis risk is divided into timing basis, route basis, size basis, and low liquidity basis. The timing basis is defined as the difference between the physical hire, fixed on the specific contract date and the FFA settlement price, calculated by averaging spot rates for a certain period. Timing basis is considered the worst in eroding the effectiveness of FFAs. This paper suggests a change of hire payment criterion from contract date to 15-day moving average, as a means of mitigating the basis risk, and analyzed the effectiveness through historical simulation. The result revealed that the change is effective in mitigating the timing basis. This study delivers a meaningful implication to shipping practice in that the change of hire payment criterion mitigates the basis risk and eventually activates the use of FFAs in the future.

• Environmental and Resource Economics Review
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• v.17 no.4
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• pp.719-749
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• 2008

Using the cost-risk portfolio approach, this study suggests a fiscal budgeting model that provide a measure to allocate fiscal budget among the strategies responding to oil crisis. In addition, it calculates the appropriate fiscal distribution among policy measures for the 2000 to 2006 fiscal years. According to the empirical results, a certain amount of budget should be allocated to the option using futures markets. The strategic stockpiling option turns out be hard to be included in the policy portfolio due to its costs much higher that the other options. Oil well development option should take more than half of total budget since its expenses are assumed to be relatively low.

• The Journal of Asian Finance, Economics and Business
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• v.7 no.4
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• pp.59-70
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• 2020

The purpose of this study is to construct the ACD model for the block trading volume duration. The ACD model based on the block trading volume duration is referred to as Volume ACD (VACD) in this study. By integrating with GARCH-type models, the VACD based GARCH type models, which include VACD-GARCH, VACD-IGARCH and VACD-FIGARCH models, are set up. This study selects Chunghwa Telecom (CHT) Inc., offering the America Depository Receipt (ADR) in NYSE, to investigate the block trading volume duration in Taiwanese equity market. The empirical results indicate that the long memory in volume duration series increases dependence at level of volatility clustering by VACD (2,1)-FIGARCH (3,d,1) model. Moreover, the VACD (2,1)-IGARCH (1,1) exhibits relatively better performance of prediction on capturing block trading volume duration. This volatility model is more appropriate in this study to portray the change of the CHT Inc. prices and provides more information about the volatility process for investment strategy, which can be a reference indicator of financial asset pricing, hedging strategy and risk management.

• The Journal of Asian Finance, Economics and Business
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• v.9 no.5
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• pp.1-9
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• 2022

The study examines stock prices (LOGKSE) and exchange rate (LOGPK)-Pakistani Rupee vis-à-vis US Dollar- interactions in Pakistan. This study employs a multivariate VAR-GARCH model using monthly data from January 2012 to October 2020. The results of the Johansen cointegration test show that there is no relationship between Foreign Exchange Market and Stock Market in the long run. In the short-run, stock exchange returns are affected slightly negatively by the changes in the foreign exchange market, but the foreign exchange market does not seem to be affected by the ups and downs of the stock exchange. The VAR model and Granger Causality show that both markets are strongly influenced by their own lagged values rather than by the lagged values of one another and show weak or no correlation between the two markets. Volatility persistence is observed in both the stock and foreign exchange markets, implying that shocks and past period volatility are major drivers of future volatility in both markets. Thus greater uncertainties today will induce panic and consequently generate higher volatility in the future period. This phenomenon has been observed many times on Pakistan Stock Exchange especially. The results have important implications for local international investors in portfolio diversification decisions and risk hedging strategies.

• The Korean Journal of Financial Management
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• v.26 no.3
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• pp.199-226
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• 2009

We examine the intertemporal relation between risk and return in the Korean stock market and foreign exchange market based on the two factor ICAPM framework. The standard GARCH model and the GJR(1993) model are employed to estimate conditional variances of the stock returns and foreign exchange rates. The covariance between the rates of stock returns and changes in the exchange rates are estimated by the constant conditional correlation model of Bollerslev(1990) and the dynamic conditional correlation model of Engle(2002). The multivariate GARCH in mean model and quasi-maximum likelihood estimation method, consequently, are applied to investigate riskreturn relation jointly. We find that the estimated coefficient of relative risk aversion is negative and statistically significant in the post-financial crisis sample period in the Korean stock market. We also show that the expected stock returns are negatively related to the dynamic covariance with foreign exchange rates. Both estimated parameters of conditional variance and covariance in the foreign exchange market, however, are not statistically significant. The GJR model is better than the standard GARCH model to estimate the conditional variances. In addition, the dynamic conditional correlation model has higher explanatory power than the constant correlation model. The empirical results of this study suggest following two points to investors and risk managers in hedging and diversifying strategies for their portfolios in the Korean stock market: first, the variability of foreign exchange rates should be considered, and second, time-varying correlation between stock returns and changes in foreign exchange rates supposed to be considered.

• Journal of Venture Innovation
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• v.1 no.1
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• pp.83-98
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• 2018

This paper makes a theoretical approach to the differences between transaction tax and capital gains tax when the financial instruments are traded and imposed taxes in K-OTC market, a newly emerging off-board market. Since it is difficult to reduce risk to the level which investors would like to pursue - depending on the taxation methods of portfolio-composed financial instruments - when it comes to forming a synthetic bond to hedge risk, this paper also seeks for effective taxation methods to make this applicable. First of all, to thoroughly review the taxation balance of synthetic bonds, this paper analyzed the effects of the transaction tax and capital gains tax imposed upon synthetic bonds according to the changes in final stock price and strike price in K-OTC market, and analyzed after-tax profit differences among them depending on whether income tax deduction took place or not. As a result of the research upon the tax gap in transaction tax and capital gains tax according to the changes of final stock prices, it was shown that imposing transaction tax is more likely to be effective for some level of risk hedging with replicating portfolio considering taxation policies and financial markets, since the effect of the transaction tax has a much lower tax gap than that of capital gains tax. In addition, in relation to whether income tax deduction was permitted or not, it was proved that the effect of the transaction tax and the capital gains tax vary depending on the variation in the strike price. Above all, it was shown that if the strike price is lower than the stock price, the transaction tax will be less affected by the existence of income tax deduction than the capital gains tax, while both will be equally affected by the existence of income tax deduction if the strike price is higher than the stock price. Further study would be to demonstrate the validation of this in the K-OTC market with actual financial instruments and, also, to seek for a more systematic hedging method by using a ratio analysis approach to the calculation of the option transaction tax

• The Korean Journal of Financial Management
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• v.23 no.1
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• pp.243-266
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• 2006

This paper tests cross hedging performance of the KOSPI 200 stock index futures to hedge the downside risk of the KOSPI, KOSPI 200 and KOSDAQ50 spot market. For this purpose we introduce the minimum variance hedge model, bivariate GARCH(1,1) and EGARCH(1,1) model as hedge models. The main results are as follows; First, we find that the direct hedge performance of KOSPI 200 index futures is better than those of indirect hedge performance. second, in case or cross hedge performance the hedge effect of KOSPI 200 stock index futures market against KOSPI 200 stock index spot market is relatively better than those of KOSPI 200 index futures against KOSPI and KOSDAQ spot position. Third, for the out-sample, hedging effectiveness of the risk-minimization with constant hedge ratios is higher than those of the time varying bivariate GARCH(1,1) and EGARCH(1,1) model. In conclusion, investors are encouraged to use simple risk-minimization model rather than the time varying hedge models like GARCH and EGARCH model to hedge the position of the Korean stock index cash markets.

• Environmental and Resource Economics Review
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• v.21 no.3
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• pp.465-491
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• 2012

Climate change, a result of increasing global warming, has been receiving more public attention due to its serious impact upon many industries. In this study we consider sustainable- (Green-) Growth and Green-Finance, and in particular temperature derivatives, as appropriately active responses to the world's significant climate change trends. We characterize the daily average temperatures in Seoul, South Korea with their seasonal properties and cycles of error terms. We form forecasting models and perform Monte Carlo simulations, and find that the risk-neutral values for CDD call-options and HDD put-options have risen since 1960s, which implies that the trend of temperature increase can be quantified in the financial markets. Contrary to the existing models, the Vasicek model with the explicit consideration of cycles in the error terms suggests that the significant option-values for the CDD call -options above certain exercise prices, implying that there is the possibility of explicit hedging against the considerable and stable increase in temperature.

• Analyses & Alternatives
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• v.1 no.1
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• pp.44-64
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• 2017

Russia's push in the Asia-Pacific region stems from its interests that have the national, regional and global dimensions. In their turn, the aims of this policy are civilizational, geopolitical, economic and prospective, with a long-term outlook. In the course of their achievement, cooperation with Northeast Asia's countries will play one of the key roles owing to the factors of geographic proximity, Northeast Asia's economic potential, risk hedging and a growing influence Northeast Asia exerts upon the global development. A new cooperation paradigm between Russia and the states of Northeast Asia should be based upon establishing and cementing self-reproducing ties. This is the central aim of Russian initiatives in relations, with Japan, the Republic of Korea, Democratic People's Republic of Korea, Mongolia and China. However, numerous obstacles ranging from Russia's absence in the regional free trade agreements and supply-production chains of value-added production to the permanent international instability generated by Pyongyang's missile-nuclear developments hamper the practical implementation of this task. Realizing the necessity to give an additional impetus to this new cooperative paradigm, Russia has to develop directions with an apparent consolidating effect. The most promising may be the establishment of a permanent security forum based upon Northeast Asia Peace and Security Mechanism chaired by the Russian Federation. The urgency of this measure and its expected support stem from the necessity to strengthen security in Northeast Asia, a task neither the US-led hub-and-spoke system nor ASE-AN-led multilateral dialogue venues have been able to resolve. The issues addressed at the security forum must include the unification of approaches to North Korean nuclear issue and producing a document specifying actions of the claimants on the disputed maritime territories in the "direct contact" situations. At the expert level, Russia has elaborated on the idea to establish such a forum outlining the spectrum of the key directions of cooperation. With the urgency in the establishment of this dialogue venue, its agenda has to be coordinated with the agendas of the existing security systems presented by the US alliances and the ASE-AN-led multilateral negotiations. The practical implementation of this initiative will strengthen security in Northeast Asia as its challenges will be resolved in the pre-emptive way based on coordinated approaches. Therefore, Russia as the Eurasian state will be one of the role players in the advent of the Asian century.