In the framework of the industrial economics approach to banking we extend the analysis of hedging against default on loans to the case of two types of credit risk. Standard results on the optimal hedge volume and the hedging effectivity from the single?risk case are shown to carry over to the...

In this paper we study the impact of more transparency in the interbank market on the volume of bank intermediated loans and on the profitability of the banking business. Transparency is modeled by means of the informational content of publicly observable signals correlated to the random...

Using a two-moment decision model this paper analyzes corporate hedging behavior in the presence of unified and differential income taxation. We start with the well-known result that risk-taking may increase when income tax rates increase and, therefore, the incentive for hedging reduces. We...

We study the impact of transparency in a commodity market on the decision problem of a competitive firm under price uncertainty and hedging opportunities. Market transparency is modeled by means of the informational content of publicly observable signals which are correlated with the random...

This paper studies a Cournot duopoly in international trade so that the firms are exposed to exchange rate risk. A hedging opportunity is introduced by a forward market where the foreign currency can be traded on. We investigate two settings: First we assume that hedging and output decisions are...

The paper examines the economic role of modelling information on the decision problem of an exporting firm under exchange rate risk and hedging. Information is described in terms of market transparency, i.e., a publicly observable signal conveys more information about the random foreign exchange...

Instruments of risk mitigation play an important role in managing country risk within the foreign direct investment (FDI) decision. Our study assesses country risk by state-dependent preferences and introduces futures contracts as a tool of risk mitigation. We show that country risk assessments...

The prospect theory is one of the most popular decision-making theories. It is based on the S-shaped utility function, unlike the von Neumann and Morgenstern (NM) theory, which is based on the concave utility function. The S-shape brings in mathematical challenges: simple extensions and...

We present a model of risk averse exporting firm subject to liquidity constraints. The firm enters an unbiased futuresmarket to hedge exchange rate risk and may not be able to satisfy high margin calls. Then the firm is forced toprematurely liquidate the futures position. We show that...

Based upon the foundations of mean-variance decision-making theory, we demonstrate that a change in the risk situation of an international enterprise open currency position does not inevitably require a corresponding hedging accommodation. Given a new risk situation, whether a revision of the...