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Über dieses Buch

This book is mainly focused on the development of tools for decision-makers in finance, ranging from treasurers of firms to professional investors and bank managers. It presents a broad variety of applications using techniques and methodologies from various fields such as econometrics, operations research and financial mathematics. The tools for decision-making have been modified towards financial decision support systems. The role of the decision-maker has become dominant, both in the development and in the use of the decision support systems. The developments in both the computer hardware and software for computers simplify the design of individualized decision support systems. Financial modelling functions as a liason between theoretical financial expertise and practice.



Financial Modelling is Back in Town

In April 1989, the fifth meeting of the EURO Working Group on Financial Modelling was held in Acireale, Sicily, organized by Benedetto Matarazzo of the University of Catania. The meeting was attended by over 100 participants from fourteen different countries. A large number of papers was presented and dicsussed.
Benedetto Matarazzo, Jaap Spronk

Inflation and Firm Growth: A Reassessment

Investigations into the impact of inflation on firm growth have resulted in ambiguous conclusions within the economic growth and financial management literature. This paper will attempt to clarify this situation and describe conditions under which firm growth will be helped or hindered by inflaction. This is accomplished by constructing a financial modelling framework which incorporates the findings of earlier research and allows the various effects to be contrasted and cumulatively assessed. Our findings suggest that conditions under which inflation may be beneficial to firm growth do exist but are realistically improbable.
Daniel L. Blakley, Arne Dag Sti

Multi-Factor Financial Planning: An Outline and Illustration

This paper deals with the support of strategically oriented financial planning processes in business firms. In handling a financial planning problem, the decision maker has to deal with a number of complications. In this paper special attention is paid to the risk with regard to the outcomes of the financial plan and the existence of multiple, conflicting goals. An interactive approach to financial planning is presented. Risk is modeled by means of so-called multi-factor risk models and multiple goals are explicitly accounted for through the use of an interactive goal programming method. The use of the interactive approach will be numerically demonstrated by means of an exemplary planning problem.
Marc Goedhart, Jaap Spronk

A Survey and Analysis of the Application of the Laplace Transform to Present Value Problems

This article provides an overview of the current position with regard to the application of the Laplace transform to Present Value problems. The limitations of the use of the Laplace transform are discussed and some ideas for future possible research are presented.
Robert W. Grubbström, Jiang Yinzhong

Tax Effects in the Dutch Bond Market

In this paper an analysis of the Dutch bond market is made. The technique used is linear programming. Given the fact that coupon income and capital gains are taxed differently and that some investors are tax-exempt in the Netherlands, it is shown that there are overpriced bonds in the market. This is as can be expected. But it is found that there are bonds that a rational investor would never hold in his portpolio, whatever the tax rate the investor has to pay on coupon income. Given the fact that the Dutch bond market is very illiquid for some bonds, an analysis of the effects of bid-ask spreads is made. It is shown that the effect of these spreads cannot explain the existence of bonds that are overpriced. It is not clear where these remaining overpricings stem from.
G. H. M. J. Kremer

The Continuous Quotations at an Auction Market

The paper embodies the first attempt to describe the explicit activities of the market participants within the rules of the stock market organisation: They are making offers to buy or to sell and they are accepting such offers with matching quantities and prices.
Thomas Landes, Otto Loistl

A New Perspective on Dynamic Portfolio Policies

The paper starts from the proceeding paper by L. Peccati in this issue. The original model is enriched with corporate taxes and reinvestment possibilities.
Elisa Luciano

The Splitting Up of a Financial Project into Uniperiodic Consecutive Projects

The splitting up of a financial project into “uniperiodic” consecutive financial projects, has been discussed for special cases in a rather theoretical context.
Paolo Manca

Modelling Stock Price Behaviour by Financial Ratios

The main purpose of this study is to find out which economic dimensions of the firm are reflected in stock price behaviour in the Finnish stock market. Based on the previous theoretical articles, four economic dimensions are chosen: profitability, financial leverage, operating leverage and corporate growth. Twelve (12) financial ratios are then selected to represent these four dimensions. All the Finnish firms common series listed for the whole 1974–1986 period are included in the empirical analysis.
Teppo Martikainen

An Actuarial and Financial Analysis for Ecu Insurance Contracts

The aim of this paper is to analyse the Italian ECU linked policy “Europea”. We will show that the adjustment of premium and capital as well as the investment policy have to take into account targets of purchasing power and stability. In our approach a recursive improvement is allowed according to the market conditions. A game model is described and qualitative aspects are introduced through fuzzy elements, showing that the Company’s behavior has to be more flexible towards a truly dynamic contract, which is also adjusted through the implementation clauses for premium and capital.
Piera Mazzoleni

Multiperiod Analysis of a Levered Portfolio

The notion of Internal Financial Law for an investment is introduced. Through this generalization of the IRR a general notion of outstanding capital is obtained. After the introduction of a generalized version of NPV a decomposition of this parameter is offered which is strictly connected to the notion of ROE.
Lorenzo Peccati

The Time Series Characteristics of Quarterly Nominal and Real Lira/Pound-Sterling Exchange Rate Movements, 1973–1988

Time series analysis is applied to quarterly data on nominal and real, lira/pound-sterling exchange rates for the period 1973 Ql to 1988 Q2. The paper uses logarithmic values which arc examined using both time and frequency domain techniques. Trends and cyclical characteristics are examined and related to the concept of purchasing power parity. Furthermore, the validity of the random walk model is considered, as well as the distribution of exchange rate movements. The results suggest that the nominal exchange rate follows a quasi-random walk with drift, whereas real exchange rates show a quasi-random walk without drift. There exists, however, evidence of a non-stationary mean. The frequency domain techniques do not clearly show that cyclical characteristics are a feature of exchange rate movements. The distribution of these movements shows approximate normality.
Andrew C. Pollock

Exploring Efficient Sets and Equilibria on Risky Assets with ABAPO DSS Prototype Version 2.1.

ABAPO 2.1 (Assets/Business(es) Analyser and Portfolio Optimizer) is a DSS prototype for portfolio managers. It assists the decision maker in two important stages of his task. First, it provides an integrated synthesis of the returns scenario in order to support the decision maker in the selection of the assets to retain, in accordance with his strategy. Second, on the retained assets it computes and shows the E-σ efficient solutions. For each efficient portfolio ABAPO supplies immediately a lot of information that should help the decision maker to single out the portfolio which fits his goals best.
Francesco A. Rossi

A Stochastic Cash Model with Deterministic Elements

In this paper we present a simple model which gives a solution to a (one period) stochastic cash problem with a fixed cash outlay at the end of the period. We focus on the role of options as insurance contracts, as to value a constraint on the minimum cash level. It is argued that a cash level adjustment is optimal where the sum of the marginal cost of liquidity and the marginal insurance premium (options value) is zero.
Willem-Max Van Den Bergh, Winfried Hallerbach

Utility of Wealth and Relative Risk Aversion: Operationalization and Estimation

Next to expectations, preferences play an important part in explaining individual investment decision making. In contrast with the case of expectations, most financial models do not presuppose homogeneity with respect to preferences, but leave room for variation between individuals. In this article we employ the social filter theory to model the concept of utility. The investor group on which we focus consists of a sample drawn from the members of the Dutch Central Union of Investment Study Clubs. By means of verbal choice behavior we operationalize and determine empirically the utility function of wealth as a function of club-specific characteristics, and we analyze the implications for the corresponding relative risk aversion.
Nico L. Van Der Sar

On the Robustness of Models of Optimal Capital Structure

This paper investigates the robustness of models of optimal capital structure i.e. their sensitivity for small changes in their specification. This question is addressed by incorporating well known models of optimal capital structure within a uniform framework of assumptions and definitions. Using both a single and a multi-period setting, the effects of limited liability, risk of default, bankruptcy costs and agency costs are investigated. In contrast with published models, virtually all of which are well behaved, many models in this study appear to produce inderminate results. It is concluded that the robustness of models of optimal capital structure leaves much to be desired, so that the prospects of extending the models with more realistic assumptions than the ones used here are rather questionable.
D. Van Der Wijst
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