International Journal of Financial Services Management (5 papers in press)

• TEACHING APPLICATIONS OF MONTE CARLO SIMULATION TO EUROPEAN OPTION PRICING
  by Musa Essayyad, Nont Dhiensiri 
  Abstract: The option pricing model has widespread applications related to both financing and investing decisions in financial as well as commodity markets. However, the Black-Scholes option pricing model is not a user-friendly numerical method and it is often very complicated for students to understand. This paper demonstrates the merits of using simulation technique as a viable, easy-to-use alternative. Specifically, it provides a pedagogical approach that could be utilised in teaching application of Monte Carlo simulation to stock option valuation. It thus serves as an interdisciplinary teaching note that can be accessed by both finance and operations management instructors to enforce student learning of option pricing model as well as Monte Carlo simulation. The paper reviews the applications of the Monte Carlo approach in option pricing, highlights the value-added efficiency that the technique generates, and finally discusses the limitation and extensions of the Monte Carlo approach in option pricing.
  Keywords: option pricing; Monte Carlo simulation; variance reduction; interdisciplinary teaching; finance; operations management.
   
• Financial Instability and Macroprudential Supervision
  by Minas Pediaditakis, Cleanthis Thomaidis 
  Abstract: Financial liberalisation and deregulation have increased financial instability and crises. While the importance of fundamental weaknesses decreased over the time, the impact of the deregulation of the financial and especially the banking system became preponderant. Thus, this paper examines the dynamics of the main factors of vulnerability interacting with the financial system and concludes that in order to prevent financial excesses and system’s malfunction, both the preservation of macroeconomic balances, and the adoption of a more efficient regulatory/supervisory framework are needed. The latter would be greatly improved by the adoption of a system-wide vision of financial instability and an inter-temporal assessment of the financial risk, in the context of a -still emerging- new approach, primarily within the Bank for International Settlements.
  Keywords: financial liberalisation; credit cycles; asset bubbles; asymmetric information; financial crises; prudential regulation; banking supervision; financial instability; deregulation.
   
• An aggregate measure of financial ratios using a multiplicative DEA model
  by Ali Emrouznejad 
  Abstract: This paper examines the problems in the definition of the General Non-Parametric Corporate Performance (GNCP) and introduces a multiplicative linear programming as an alternative model for corporate performance. We verified and tested a statistically significant difference between the two models based on the application of 27 UK industries using six performance ratios. Our new model is found to be a more robust performance model than the previous standard Data Envelopment Analysis (DEA) model.
  Keywords: Data Envelopment Analysis (DEA); financial ratio; General Non-Parametric Corporate Performance (GNCP); Multiplicative Non-parametric Corporate Performance (MNCP)
   
• Post Issue Promoter Groups Holding, Signaling and IPO Underprice: Evidence from Indian IPOs
  by Seshadev Sahoo, Prabina Rajib 
  Abstract: This paper attempts to specify the relationship between post issue promoter groups retention and IPO underprice. We also investigate the impact of signaling and financial variables i.e. offer size, times subscribed, age of the firm, book value, leverage, market volatility and ex-ante uncertainty along with post issue promoter groups holding on IPO underprice. On using a sample of 92 IPOs, we find IPOs are underpriced at an average of 46.55% during 2002 to 2006. We document a positive relationship between post issue promoter group holding and IPO underprice. Our results indicate offer size, times subscribed, and post issue promoter group holding are statistically significant in explaining underprice. We also document positive initial day return for IPOs across all industries, while manufacturing sector IPOs are less underpriced than non-manufacturing sector IPOs.
  Keywords: IPO, post issue promoter groups holding, underprice, signaling, offer size, age, book value, ex-ante uncertainty, times subscribed, leverage, volatility.
   
• High-Tech IPOs in the US, UK and Europe after the Dot-Com Bubble
  by Keith Stephen Pilbeam, Francis Nagle 
  Abstract: From 1998 – 2001, the high-tech industry saw a dramatic increase and subsequent sharp decline in market capitalization during a phenomenon known as the Dot-Com Bubble. During this time there were a large number of private companies that made the decision to go public via an initial public offering (IPO) of stock on the general equities market. After the Dot-Com crash of 2001, the IPO market for high-tech companies changed dramatically. Far fewer companies went public, and they had much lower first day returns than those during the bubble. This paper explores the first day returns of high-tech IPOs in the United States and Europe in the post- Dot-Com Bubble era. We compare the results of the 2002-2005 post bubble period with those of the 1998-2001 Dot-Com Bubble period. We find that the high-tech IPO market was dramatically affected by the Dot-Com crash and that after the crash, the number of high-tech IPOs dropped considerably, as did the average first day returns of these IPOs. Finally, we find that the European high-tech IPO market was not as adversely affected by the Dot-Com crash as the American market.
  Keywords: initial public offerings; first day returns; corporate finance.