Koch and MacDonald, (2010), discussed the problem of finding an optimal Gap ratio, they stated that there is no specific optimal Gap ratio for all financial institutions and each company “must evaluate its overall risk and return profile and objectives to determine its optimal GAP”. A number of hedging studies suggest that a full hedge might not always be optimal for a financial intermediary (Grammatikos and Saunders, 1983; Junkus and Lee,
1985).
Wetmore and Brick, (1990), argue that zero Gap may not be optimal because of the basis risk, which implies that a financial institutions might be in better position with non-zero Gap. 2-8-1-3 Weaknesses of the Re-pricing Model
There are several weaknesses of the traditional re-pricing model; the following are the most important:
1- Re-pricing Gap model can help diminish the impact of market
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It basically predicts the maximum possible loss given a certain scenario by using probability distributions. This can be done in two ways, either by approximating the distribution by a parametric approximation such as a normal distribution or by considering the actual distribution. Usually, the confidence level used is 95 percent (Jorion, 2001). For example, suppose a daily VaR is stated as $100,000 for a 95 percent level of confidence. This means that there is only 5 percent chance that the loss the next day will be greater than $100,000. In other words, we expect this portfolio to lose more than $100,000 in one out of twenty days. Therefore, VaR is a measure of the worst expected loss that a portfolio may suffer over a period of time that has been specified by the user, under normal market conditions and a specified level of confidence (Chaudhury,
Designing an appropriate pricing strategy is always a challenging task for most corporations, because price is a determinative factor of operating profits. Meanwhile, price can affect customer perceptions and product development. According to the basic economic theory, pricing policy should reflect the product’s costs and the relationship between supply and demand. In addition to the fundamental framework, price settle mechanism should take into consideration the underlying industry environment. For example, pricing in manufacturing is heavily cost-based with the certainty that the costs are fully covered. And conversely, in some particular sectors, there are downsides when price setting relies solely on the variable costs because of the high fixed cost. Based on this judgment, product providers should carry different pricing mechanism under different market conditions. Accordingly, pricing evolves from a purely academic topic related to the economic theories to a profits-maximising instrument involved with marketing practices. All these issues make the price setting problem more
Price is all around us. You pay accommodation fee for your hostel, tuition for your education. You pay transportation fee such as airline, railway, taxi, and bus. And the bank charges you interest for the money you borrow, the price for parking your car at shopping mall. Your hairdresser asks charge for cover his service. The “price” of an executive is a salary, the price of a salesperson may be a commission, and the price of a worker is a wage. Price is the amount of money
This solutions manual provides the answers to all the review questions and end-of-chapter problems in Financial Management: Principles and Practice, by Timothy Gallagher. The answers and the steps taken to obtain the answers are shown. Readers are reminded that in finance there is often more than one answer to a question or to a problem, depending on one‘s viewpoint and assumptions. One answer is
Mr. Lee and the other executives expect to generate a higher profit from hedging since they have majority of their personal wealth invested into the firm. The focus of any hedging program should always be to minimize the firm’s risk of loss, but that does not mean the they will
Pricing is a pertinent issue in procurement and acquisition in organizations. Consumers buying the commodities of an entity should get clarity on pricing related issues. There is uncertainty in Pro
X- C. The composition of the optimal international portfolio is identical for all investors of a particular country, whether or not they hedge their risk with currency futures
Cost-plus pricing lead to a complicated pricing structures, since distributors and customers negotiated separate product prices from manufacturers, introduced incentives, let prices vary from customer to customer, covered some products by contract and some don’t etc.
This paper was prepared for Financial Decision Making, MBU 652, Summer 2011, taught by Professor Howard S. Steed, PhD
Amongst other sports, baseball is a sport that has been known to evoke nostalgic feelings from Americans. It is truly an American game that many played when they were little children. It has been named many fondling names like “the national pastime”, and “America’s democratic game. Its popularity also comes from the fact that it does not discriminate players. People of above average height and weight can play. Amateurs played an informal version of baseball dating back to 18th century. Most people accredited Abner Doubleday with inventing baseball but Alexander Cartwright is known as the “father of baseball” due to establishing the rules as well as the layout of the field. The love of the game started during the Civil War which spread this
LTCM’s board of directors included many geniuses in from the financial world, who collectively created complex models allowed them to calculate risk of securities much more accurately than others. LTCM’s trading strategy was featured by the divergence in price between long-term U.S. Treasury bonds. It shorted the more expensive “on-the-run” bond and purchased the “off-the-run” security at the same time to exploit the price divergence. In order
The option to adopt a quasi-similar pricing structure, with an exception for the bucket of consumption in between 100 and 300 minutes, has the same pros and cons of the one before mentioned, in addition to increase the probability of triggering an aggressive competitive reaction by incumbent (price wars).
In order to investigate the problem statement, in section 2 the theories of cost-plus pricing and elasticity of demand will be defined and explained in depth. Additionally, section 2 contains the discussion about how each theory addresses the problem statement. Section 3 will contain the research conducted, specifically an overview of the information gained
Today’s highly competitive business world forces companies to create different tactics and relatively rely on multiple pricing strategies to conduct business.
The markets today are so complex and deal with so many variables it can be difficult to understand just exactly how they operate. In the following I will reveal the different kinds of market structures along with their different pricing strategies. Relating to these topics, I will focus on the importance of cost, competition and customer.
Price, which is one of the most important elements of the marketing mix, can be difficult to get right. Pricing too high, or low, can negatively impact on customer satisfaction and revenue. Adopting a pricing strategy is necessary to achieve desired sales objectives (Chan & Wong 2005).