Forthcoming articles

International Journal of Financial Engineering and Risk Management

International Journal of Financial Engineering and Risk Management (IJFERM)

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International Journal of Financial Engineering and Risk Management (4 papers in press)

Regular Issues

  • An Equity-Credit Hybrid Model for Asset Correlations   Order a copy of this article
    by Fabio Dias 
    Abstract: Single factor Gaussian copula models are widely used to manage credit risk of loan portfolios, even driving how many large financial institutions are capitalised under Basel II / III. Under this formulation, the default correlation between two separate firms is directly explained by their asset correlation to a systematic factor, which can be estimated using either equity correlations or observed default rates, with the portfolio losses usually being simulated under a Gaussian copula model. Though it is widely accepted that the use of observed default rates or even equity returns to calibrate a single factor Gaussian copula model is likely to understate the tail risk, this paper proposes a Bayesian approach for a single factor Gaussian copula where the asset correlations are modelled using an inverse Wishart prior with the scale parameter calibrated to observed default rates and the degrees of freedom chosen using the in-sample continuous ranked probability score whilst the equity correlations are used to obtain the posterior distribution. The proposed hybrid model is shown to produce probabilistic forecasts of defaults with better out-of-sample performance than the standard single factor Gaussian copula even though it maintained low complexity and ease of implementation.
    Keywords: asset correlations; credit risk management; structural model of credit risk; factor copula models.

Special Issue on: FEBS 2017 Advances in Banking and Finance in the Post-Crisis Era

  • An empirical investigation of Covered Interest rate Parity: The case of the GBP/USD and SEK/USD exchange rates   Order a copy of this article
    by Stephanos Papadamou, Evangelia Theodosiou 
    Abstract: The paper examines empirically a well-established relationship between Forward premi-um and Interest rate differential in International Finance, Covered Interest Rate Parity (CIP). More specifically, a cointegration-based approach is employed to test CIP in two different exchange rates against USD, namely GBP/USD and SEK/USD, by using monthly data and Euro rates for a period of almost fifteen years. Findings suggest the validity of CIP in the case of GBP/USD for both 3-month and 6-month maturities. On the contrary, the empirical analysis of SEK/USD doesnt provide any evidence for ac-cepting the theoretical framework. An important point is that research presents the exist-ence of systematic, small-scale deviations from parity, a finding that can be attributed to the modeling of transaction costs.
    Keywords: covered interest rate parity; GBP/USD; SEK/USD; Johansen’s co-integration approach.

  • Bitcoin as an alternative digital currency. Exploring the publics perception vs experts.   Order a copy of this article
    by Spyros Papathanasiou, Nikolaos Papamatthaiou, Dimitrios Balios 
    Abstract: Νumerous attempts have been made to explain and classify Bitcoin. The different opinions of eminent economists on the subject have raised a series of questions: What is the publics notion of the digital currency? Would a general use of a digital currency be acceptable and if so, what kind of use would that be? Does the view of the experts on the subject conform with that of the layman individual? Our goal is to find out if the view of the public coincides with the opinion of the experts on the subject and to determine if is information can be implemented in order to establish a use of Bitcoin in our everyday lives, apart from the specialized use it has to date. During the first stage of this research, methods and rules of analysis such as descriptive statistics and tables and charts were used. Firstly, a questionnaire was used and secondly, the answers were gathered, classified and added up according to the participants choices. During the second stage the data was collected with the use of random sampling, while various techniques, such as simple and multiple regressions were utilized for analyzing the results. The conclusion which has been obtained is that the public perceives Bitcoin differently than the experts do. Individuals believe that Bitcoin is mainly a means of transactions/payments, contrary to the experts opinion, which is that it is foremost an investment asset. Additionally, we may perceive a convergence between the view of public and that of the experts on the adoption of Bitcoin technology by existing trading systems.
    Keywords: Bitcoin; Cryptocurrencies; publics’ perception; quantitative data collection approach; alternative investments.

Special Issue on: FEBS 2017 Advances in Banking and Finance in the Post-Crisis Era

  • A study of corporate failure using Data Envelopment Analysis and Quadratic Discriminant Analysis: the case of the Greek construction sector during the period of the economic crisis   Order a copy of this article
    by Apostolos Christopoulos, Nikolaos Demiroglou, Ioannis Dokas 
    Abstract: The aim of the present study is to provide a reliable methodology relative to the use of MDA in the construction process of corporate failure prediction models. In the present study, a two-stage analysis is followed. In the first stage we construct our sample for each sub period: The pre-crisis period 2006-2008 and the crisis period 2009-2011. The distinction of the total sample in two groups (efficient, non-efficient) per sub-period is realized using DEA method. In the second stage we develop the QDA and LDA in order to establish a reliable prediction model per sub period. In more detail we propose an output-oriented DEA model using six financial ratios from the fields of liquidity, activity and profitability. According to the efficiency score of DEA we set two groups of firms for each sub - period. In the second stage emphasis is put on the assumptions of the model used. Firstly, we select financial ratios from the categories of capital structure, profitability and operating ratios. Secondly, the necessary normality tests and transformations are incorporated in the proposed methodology in order to apply the MDA.
    Keywords: DEA; Financial Ratios; LDA; QDA; Corporate Failure Prediction; Construction Sector; Business Cycle.