banking firm, risk of investment and derivatives银行、风险投资和衍生品.pdfVIP

Technology and Investment, 2011, 2, 222-227 doi:10.4236/ti.2011.23023 Published Online August 2011 (http://www.SciRP.org/journal/ti) Banking Firm, Risk of Investment and Derivatives 1 2 1 Udo Broll , Wing-Keung Wong , Mojia Wu 1 Department of Business and Economics, Technische Universität Dresden, Dresden, Germany 2Department of Economics, Hong Kong Baptist University, Hong Kong, China E-mail : udo.broll@tu-dresden.de, awong@.hk Received September 13, 2010; revised May 17, 2011; accepted May 24, 2011 Abstract The economic environment for financial institutions has become increasingly risky. Hence these institutions must find ways to manage risk of which one of the most important forms is credit risk. In this paper we use the mean-variance (mean-standard deviation) approach to examine a banking firm investing in risky assets and hedging opportunities. The mean-standard deviation framework can be used because our hedging model satisfies a scale and location condition. The focus of this study is on how credit risk affects optimal bank in- vestment in the loan and deposit market when derivatives are available. Furthermore we explore the rela- tionship among the first- and second-degree stochastic dominance efficient sets and the mean-variance effi- cient set. Keywords: Banking Firm, Investment, Risk, Derivatives, Hedging, (µ, )-Preferences, Stochastic Dominance 1. Introduction fluctuations in risk as in the Asian Financial Crises in 1997, the Russian Financial Crises 1998, the Argentinean In our paper we examine the behavior of a ban