The Experts below are selected from a list of 360 Experts worldwide ranked by ideXlab platform
Frank Fehle - One of the best experts on this subject based on the ideXlab platform.
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international evidence on Financial Derivatives usage
Financial Management, 2009Co-Authors: Sohnke M Bartram, Gregory W Brown, Frank FehleAbstract:Theory predicts that nonFinancial corporations might use Derivatives to lower Financial distress costs, coordinate cash flows with investment, or resolve agency conflicts between managers and owners. Using a new database, we find that traditional tests of these theories have little power to explain the determinants of corporate Derivatives usage. Instead, we show that derivative usage is determined endogenously with other Financial and operating decisions in ways that are intuitive but not related to specific theories for why firms hedge. For example, derivative usage helps determine the level and maturity of debt, dividend policy, holdings of liquid assets, and international operating hedging.
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international evidence on Financial Derivatives usage
Social Science Research Network, 2006Co-Authors: Sohnke M Bartram, Gregory W Brown, Frank FehleAbstract:Popular theories of Financial risk management indicate that nonFinancial corporations may use Derivatives to lower the expected costs of Financial distress, to coordinate cash flows with investment policy, or because of agency conflicts between managers and owners. Using a new database of 7,319 firms in 50 countries, we show that traditional tests of these explanations result in little explanatory power for determining which firms use Derivatives. Instead, risk management choices are determined endogenously with other Financial and operating decisions in ways that are intuitive but difficult to attribute to specific theories. This finding has several important implications. First, it explains why identifying specific motivations for Financial risk management is difficult. Second, it indicates that derivative usage can have significant effects on other firm decisions such as the level and maturity of debt, dividend policy, holdings of liquid assets, and the degree of operating hedging. Third, it implies that future empirical and theoretical research on corporate risk management needs to examine a broader array of firm characteristics and decisions to better isolate the role Derivatives play in Financial policy.
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international evidence on Financial Derivatives usage
Research Papers in Economics, 2003Co-Authors: Sohnke M Bartram, Gregory W Brown, Frank FehleAbstract:This paper presents international evidence on the use of Financial Derivatives for a sample of 7,292 non-Financial firms from 48 countries including the United States. Across all countries, 59.8% of the firms use Derivatives in general, while 43.6% use currency Derivatives, 32.5% interest rate Derivatives, and only 10.0% commodity price Derivatives. Firmspecific factors associated with Derivatives use are very similar across different countries. Some factors are associated only with specific types of Derivatives. The size of the local Derivatives market is an important factor determining Derivatives use. Other countryspecific factors are not consistently significant. Together these results show that a wide range of factors likely determine the use of Derivatives by non-Financial firms thus explaining the mixed results from studies examining primarily U.S. firms. However, some of the results are unambiguously counter to theoretical predictions. Finally, we examine whether Derivatives use is associated with higher firm value. We find positive valuation effects primarily for firms using interest rate Derivatives.
Sohnke M Bartram - One of the best experts on this subject based on the ideXlab platform.
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international evidence on Financial Derivatives usage
Financial Management, 2009Co-Authors: Sohnke M Bartram, Gregory W Brown, Frank FehleAbstract:Theory predicts that nonFinancial corporations might use Derivatives to lower Financial distress costs, coordinate cash flows with investment, or resolve agency conflicts between managers and owners. Using a new database, we find that traditional tests of these theories have little power to explain the determinants of corporate Derivatives usage. Instead, we show that derivative usage is determined endogenously with other Financial and operating decisions in ways that are intuitive but not related to specific theories for why firms hedge. For example, derivative usage helps determine the level and maturity of debt, dividend policy, holdings of liquid assets, and international operating hedging.
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international evidence on Financial Derivatives usage
Social Science Research Network, 2006Co-Authors: Sohnke M Bartram, Gregory W Brown, Frank FehleAbstract:Popular theories of Financial risk management indicate that nonFinancial corporations may use Derivatives to lower the expected costs of Financial distress, to coordinate cash flows with investment policy, or because of agency conflicts between managers and owners. Using a new database of 7,319 firms in 50 countries, we show that traditional tests of these explanations result in little explanatory power for determining which firms use Derivatives. Instead, risk management choices are determined endogenously with other Financial and operating decisions in ways that are intuitive but difficult to attribute to specific theories. This finding has several important implications. First, it explains why identifying specific motivations for Financial risk management is difficult. Second, it indicates that derivative usage can have significant effects on other firm decisions such as the level and maturity of debt, dividend policy, holdings of liquid assets, and the degree of operating hedging. Third, it implies that future empirical and theoretical research on corporate risk management needs to examine a broader array of firm characteristics and decisions to better isolate the role Derivatives play in Financial policy.
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international evidence on Financial Derivatives usage
Research Papers in Economics, 2003Co-Authors: Sohnke M Bartram, Gregory W Brown, Frank FehleAbstract:This paper presents international evidence on the use of Financial Derivatives for a sample of 7,292 non-Financial firms from 48 countries including the United States. Across all countries, 59.8% of the firms use Derivatives in general, while 43.6% use currency Derivatives, 32.5% interest rate Derivatives, and only 10.0% commodity price Derivatives. Firmspecific factors associated with Derivatives use are very similar across different countries. Some factors are associated only with specific types of Derivatives. The size of the local Derivatives market is an important factor determining Derivatives use. Other countryspecific factors are not consistently significant. Together these results show that a wide range of factors likely determine the use of Derivatives by non-Financial firms thus explaining the mixed results from studies examining primarily U.S. firms. However, some of the results are unambiguously counter to theoretical predictions. Finally, we examine whether Derivatives use is associated with higher firm value. We find positive valuation effects primarily for firms using interest rate Derivatives.
Arnulf Jentzen - One of the best experts on this subject based on the ideXlab platform.
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overcoming the curse of dimensionality in the approximative pricing of Financial Derivatives with default risks
Electronic Journal of Probability, 2020Co-Authors: Martin Hutzenthaler, Arnulf Jentzen, Von Wurstemberger WurstembergerAbstract:Parabolic partial differential equations (PDEs) are widely used in the mathematical modeling of natural phenomena and man-made complex systems. In particular, parabolic PDEs are a fundamental tool to approximately determine fair prices of Financial Derivatives in the Financial engineering industry. The PDEs appearing in Financial engineering applications are often nonlinear (e.g., in PDE models which take into account the possibility of a defaulting counterparty) and high-dimensional since the dimension typically corresponds to the number of considered Financial assets. A major issue in the scientific literature is that most approximation methods for nonlinear PDEs suffer from the so-called curse of dimensionality in the sense that the computational effort to compute an approximation with a prescribed accuracy grows exponentially in the dimension of the PDE or in the reciprocal of the prescribed approximation accuracy and nearly all approximation methods for nonlinear PDEs in the scientific literature have not been shown not to suffer from the curse of dimensionality. Recently, a new class of approximation schemes for semilinear parabolic PDEs, termed full history recursive multilevel Picard (MLP) algorithms, were introduced and it was proven that MLP algorithms do overcome the curse of dimensionality for semilinear heat equations. In this paper we extend and generalize those findings to a more general class of semilinear PDEs which includes as special cases the important examples of semilinear Black-Scholes equations used in pricing models for Financial Derivatives with default risks. In particular, we introduce an MLP algorithm for the approximation of solutions of semilinear Black-Scholes equations and prove, under the assumption that the nonlinearity in the PDE is globally Lipschitz continuous, that the computational effort of the proposed method grows at most polynomially in both the dimension and the reciprocal of the prescribed approximation accuracy. We thereby establish, for the first time, that the numerical approximation of solutions of semilinear Black-Scholes equations is a polynomially tractable approximation problem.
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overcoming the curse of dimensionality in the approximative pricing of Financial Derivatives with default risks
SAM Research Report, 2019Co-Authors: Martin Hutzenthaler, Arnulf Jentzen, Philippe Von WurstembergerAbstract:Parabolic partial differential equations (PDEs) are widely used in the mathematical modeling of natural phenomena and man made complex systems. In particular, parabolic PDEs are a fundamental tool to determine fair prices of Financial Derivatives in the Financial industry. The PDEs appearing in Financial engineering applications are often nonlinear and high dimensional since the dimension typically corresponds to the number of considered Financial assets. A major issue is that most approximation methods for nonlinear PDEs in the literature suffer under the so-called curse of dimensionality in the sense that the computational effort to compute an approximation with a prescribed accuracy grows exponentially in the dimension of the PDE or in the reciprocal of the prescribed approximation accuracy and nearly all approximation methods have not been shown not to suffer under the curse of dimensionality. Recently, a new class of approximation schemes for semilinear parabolic PDEs, termed full history recursive multilevel Picard (MLP) algorithms, were introduced and it was proven that MLP algorithms do overcome the curse of dimensionality for semilinear heat equations. In this paper we extend those findings to a more general class of semilinear PDEs including as special cases semilinear Black-Scholes equations used for the pricing of Financial Derivatives with default risks. More specifically, we introduce an MLP algorithm for the approximation of solutions of semilinear Black-Scholes equations and prove that the computational effort of our method grows at most polynomially both in the dimension and the reciprocal of the prescribed approximation accuracy. This is, to the best of our knowledge, the first result showing that the approximation of solutions of semilinear Black-Scholes equations is a polynomially tractable approximation problem.
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on arbitrarily slow convergence rates for strong numerical approximations of cox ingersoll ross processes and squared bessel processes
Finance and Stochastics, 2019Co-Authors: Mario Hefter, Arnulf JentzenAbstract:Cox–Ingersoll–Ross (CIR) processes are extensively used in state-of-the-art models for the pricing of Financial Derivatives. The prices of Financial Derivatives are very often approximately computed by means of explicit or implicit Euler- or Milstein-type discretization methods based on equidistant evaluations of the driving noise processes. In this article, we study the strong convergence speeds of all such discretization methods. More specifically, the main result of this article reveals that each such discretization method achieves at most a strong convergence order of \(\delta /2\), where \(0<\delta <2\) is the dimension of the squared Bessel process associated to the considered CIR process.
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on arbitrarily slow convergence rates for strong numerical approximations of cox ingersoll ross processes and squared bessel processes
arXiv: Numerical Analysis, 2017Co-Authors: Mario Hefter, Arnulf JentzenAbstract:Cox-Ingersoll-Ross (CIR) processes are extensively used in state-of-the-art models for the approximative pricing of Financial Derivatives. In particular, CIR processes are day after day employed to model instantaneous variances (squared volatilities) of foreign exchange rates and stock prices in Heston-type models and they are also intensively used to model short-rate interest rates. The prices of the Financial Derivatives in the above mentioned models are very often approximately computed by means of explicit or implicit Euler- or Milstein-type discretization methods based on equidistant evaluations of the driving noise processes. In this article we study the strong convergence speeds of all such discretization methods. More specifically, the main result of this article reveals that each such discretization method achieves at most a strong convergence order of $\delta/2$, where $0<\delta<2$ is the dimension of the squared Bessel process associated to the considered CIR process. In particular, we thereby reveal that discretization methods currently employed in the Financial industry may converge with arbitrarily slow strong convergence rates to the solution of the considered CIR process. We thereby lay open the need of the development of other more sophisticated approximation methods which are capable to solve CIR processes in the strong sense in a reasonable computational time and which thus can not belong to the class of algorithms which use equidistant evaluations of the driving noise processes.
Michael P Donohoe - One of the best experts on this subject based on the ideXlab platform.
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Financial Derivatives in corporate tax avoidance a conceptual perspective
Journal of The American Taxation Association, 2015Co-Authors: Michael P DonohoeAbstract:ABSTRACT: Financial Derivatives play an increasingly common role in corporate tax avoidance. This paper takes a descriptive approach to answer the fundamental, yet underexplored, questions of why Derivatives are useful for corporate tax avoidance and how they fulfill this objective. To evaluate why, I develop and discuss a simple framework of research, practical issues, and anecdotes about Derivatives-based tax avoidance. I then provide unique insight into how Derivatives reduce taxes by discussing the complex transaction-level detail of two Derivatives-based tax-planning strategies. Finally, I identify potential issues that might be addressed in future research. Overall, by discussing the concepts and mechanics of Derivatives-based tax avoidance, this study serves as a prologue to extant and future research on the topic. JEL Classifications: G32, H25, M40
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the economic effects of Financial Derivatives on corporate tax avoidance
2014Co-Authors: Michael P DonohoeAbstract:This study estimates the corporate tax savings from Financial Derivatives. I document a 3.6 and 4.4 percentage point reduction in three-year current and cash effective tax rates (ETRs), respectively, after a firm initiates a Derivatives program. The decline in cash ETR equates to $10.69 million in tax savings for the average firm and $4.0 billion for the entire sample of 375 new Derivatives users. Of these amounts, $8.75 million and $3.3 billion, respectively, are incremental to tax savings that theory suggests are a byproduct of risk management. Collectively, these findings provide economic insight into the prevalence of Derivatives-based tax avoidance.
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Financial Derivatives in corporate tax avoidance a conceptual perspective
Social Science Research Network, 2014Co-Authors: Michael P DonohoeAbstract:Financial Derivatives play an increasingly common role in corporate tax avoidance. This paper takes a descriptive approach to answer the fundamental, yet under explored, questions of why Derivatives are useful for corporate tax avoidance and how they fulfill this objective. To evaluate why, I develop and discuss a simple framework of research, practical issues, and anecdotes about Derivatives-based tax avoidance. I then provide unique insight into how Derivatives reduce taxes by discussing the complex transaction-level detail of two Derivatives-based tax planning strategies. Finally, I identify potential issues that might be addressed in future research. Overall, by discussing the concepts and mechanics of Derivatives-based tax avoidance, this study serves as a prologue to extant and future research on the topic.
Gregory W Brown - One of the best experts on this subject based on the ideXlab platform.
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international evidence on Financial Derivatives usage
Financial Management, 2009Co-Authors: Sohnke M Bartram, Gregory W Brown, Frank FehleAbstract:Theory predicts that nonFinancial corporations might use Derivatives to lower Financial distress costs, coordinate cash flows with investment, or resolve agency conflicts between managers and owners. Using a new database, we find that traditional tests of these theories have little power to explain the determinants of corporate Derivatives usage. Instead, we show that derivative usage is determined endogenously with other Financial and operating decisions in ways that are intuitive but not related to specific theories for why firms hedge. For example, derivative usage helps determine the level and maturity of debt, dividend policy, holdings of liquid assets, and international operating hedging.
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international evidence on Financial Derivatives usage
Social Science Research Network, 2006Co-Authors: Sohnke M Bartram, Gregory W Brown, Frank FehleAbstract:Popular theories of Financial risk management indicate that nonFinancial corporations may use Derivatives to lower the expected costs of Financial distress, to coordinate cash flows with investment policy, or because of agency conflicts between managers and owners. Using a new database of 7,319 firms in 50 countries, we show that traditional tests of these explanations result in little explanatory power for determining which firms use Derivatives. Instead, risk management choices are determined endogenously with other Financial and operating decisions in ways that are intuitive but difficult to attribute to specific theories. This finding has several important implications. First, it explains why identifying specific motivations for Financial risk management is difficult. Second, it indicates that derivative usage can have significant effects on other firm decisions such as the level and maturity of debt, dividend policy, holdings of liquid assets, and the degree of operating hedging. Third, it implies that future empirical and theoretical research on corporate risk management needs to examine a broader array of firm characteristics and decisions to better isolate the role Derivatives play in Financial policy.
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international evidence on Financial Derivatives usage
Research Papers in Economics, 2003Co-Authors: Sohnke M Bartram, Gregory W Brown, Frank FehleAbstract:This paper presents international evidence on the use of Financial Derivatives for a sample of 7,292 non-Financial firms from 48 countries including the United States. Across all countries, 59.8% of the firms use Derivatives in general, while 43.6% use currency Derivatives, 32.5% interest rate Derivatives, and only 10.0% commodity price Derivatives. Firmspecific factors associated with Derivatives use are very similar across different countries. Some factors are associated only with specific types of Derivatives. The size of the local Derivatives market is an important factor determining Derivatives use. Other countryspecific factors are not consistently significant. Together these results show that a wide range of factors likely determine the use of Derivatives by non-Financial firms thus explaining the mixed results from studies examining primarily U.S. firms. However, some of the results are unambiguously counter to theoretical predictions. Finally, we examine whether Derivatives use is associated with higher firm value. We find positive valuation effects primarily for firms using interest rate Derivatives.
