Globalization, Gating, and Risk Finance

UNURJARGAL NYAMBUU is a Professor of Economics in the Department of Social Science, New York City College of Technology (NYCCT), The City University of New York (CUNY), Brooklyn, NY. CHARLES S. TAPIERO is the Topfer Chair Distinguished Professor of Financial Engineering and Technology Management, Department of Finance and Risk Engineering, Tandon School of Engineering, New York University (NYU), Brooklyn, NY.

• Motivation xviiiAbout the Authors xxv1 Globalization: Economies in Collision 1Motivation 11.1 Introduction 11.2 Trend and Challenges in Global Finance 51.3 Global Finance and Trade in the Media and News 121.4 Global Risks 151.5 Global Finance and Swaps and Financial Products 181.6 Currencies and Liquidity 201.7 Foreign Exchange Regime and Markets, Global Payment, and Reserve Currency 231.8 Trade Incentives and Repressions 331.9 Historical Evolution 361.10 Archaic and Modern Globalization: A Time Path 401.11 Discussions on Global Issues 44References 462 Data, Measurements, and Global Finance 51Motivation 512.1 Data and Models 512.2 Global Finance, Data Reduction, and Statistical Measurements 612.3 Volatility and Implied Models Estimates 762.4 Stochastic Models 862.5 Multivariate Probability Models 912.6 Statistical Data Reduction 1002.7 Complexity: The Global Risk Finance Scourge 1022.8 Discussion 103References 1043 Global Finance: Utility, Financial Consumption, and Asset Pricing 110Motivation 1103.1 Introduction: Financial Models and Pricing 1103.2 Review: Elements of Utility and Risk 1163.3 The Utility of Consumption and its Price 1193.4 The Capital Assets Pricing Model 1233.5 Review of Elements of Arrow–Debreu and Q Pricing 1313.6 The Multiperiod Consumption-Based Capital Asset Pricing Model 1423.7 Thought Experiments 154References 1554 Macroeconomics, Foreign Exchange, and Global Finance 157Motivation 1574.1 Introduction 1574.2 Fundamental Macroeconomic Models 1584.3 Balance of Payments Accounts 1654.4 The Mundell and Fleming Model: IS–LM–BOP Model 1714.5 Macroeconomic Factors Reshaping Global Outlook 1784.6 Conclusion 190References 1915 Foreign Exchange Models and Prices 195Motivation 1955.1 Introduction 1955.2 Macroeconomic Models of Foreign Exchange Rates 1965.3 Exchange Rates and Purchasing Power Parity 1985.4 Foreign Exchange Rates and Interest Rates: The Assets Approach 2045.5 Demand and Supply of Money and Exchange Rates: Monetary Approach 2075.6 Extensions of the Models 2125.7 Conclusions 221Appendix 5.A: Suggested Empirical Work for Econometric and Statistical Analysis 222References 2236 Asia: Financial Environment and Risks 226Motivation 2266.1 Introduction 2266.2 Driving Engines of Economic Growth in Asia 2286.3 Financial Sector Development in Asia 2356.4 Risks of Investing in Asia 2456.5 Financial Development in China 2516.6 Finance in Japan 2606.7 Conclusion 265References 2667 Financial Currency Pricing, Swaps, Derivatives, and Complete Markets 269Motivation 2697.1 Introduction 2697.2 Pricing Consumption Price Index and Foreign Exchange in Complete Financial Markets 2727.3 A Generalized Consumption Price Index Foreign Exchange Pricing Model 2767.4 Relative and Foreign Exchange Basket Price Tracking 2787.5 Options Pricing: Applications and Examples 2927.6 Spread and Two-Factor Options 2967.7 Optional Trading Strategies 3007.8 The Greeks and Financial Risk Management 3038 Credit Risk and International Debt 315Motivation 3158.1 Introduction 3158.2 Growth of Debt and Debt Dependency 3178.3 Foreign Exchange is a Credit Bestowed to a Sovereign Entity 3218.4 Credit and Global Risks 3238.5 Credit Risk, Credit Derivatives, and Credit Default Swaps 3308.6 Swaps 3328.7 Credit Default Swaps and Securitized Volatility 3388.8 Pricing Credit Risk 3408.9 Debt, The Merton Model, and Default 347References 3559 Globalization and Trade: A Changing World 358Motivation 3589.1 Introduction 3589.2 Tracking Trade and Globalization 3689.3 Strategic Trade and Gating 3759.4 A Multicountry Financial Consumption Utility 3789.5 The Demand Sector and its Supply 3889.6 Conclusions 390References 39110 Compliance and Financial Regulation 395Motivation 39510.1 Introduction 39510.2 Regulation Risks 40310.3 Regulation, Technology, and Compliance 40510.4 Statistical and Compliance Risks 40710.5 A Multivariate Bernoulli Compliance and Audits 41510.6 Regulation and Compliance Games 41810.7 Satisficing Games and Regulation–Compliance 42110.8 Conclusion 423Appendix 10.A: Games, Risk and Uncertainty 423Appendix 10.B: Concepts of Games and Risk 424References 428Index 000