Joocheol Kim

Event tree based sampling

We develop a new sampling method, called an event tree-based sampling, which is suitable for the multistage stochastic programming formulation for the asset liability management. We find that our method captures a special structure inherited in the binomial lattice representation of an event tree, which is the essential part of the stochastic formulation of asset liability management under uncertainty.

An investigation of the relationship between bond market volatility and trading activities: Korea treasury bond futures market

This study proposes a new proxy variable for the speculative trading activities in the analysis of relationship between volatility and trading activities. With the new variable, the dynamic interaction among underlying bond market volatility, futures trading volume, open interest and speculation ratio in Korea treasury bond and futures markets is examined under the vector autoregressive analysis (VAR) framework. A positive relationship is found between the bond market volatility and the speculation ratio. The result implies that the new variable could be a good candidate, reflecting the speculative trading activities in derivative markets.

Financial Derivatives Usage and Monetary Policy Transmission: Evidence from Korean Firm-level Data

Abstract This study empirically investigates the impacts of the financial derivative usage on corporate debt capability and stock return using Korean non-financial firms’ data from 2002 to 2012. Empirical results support the conjecture that financial derivatives tend to increase debt capability by transferring risks and reducing financial cost. Derivative user firms turn out to have better stock market performance especially during period with the tight credit market. Unexpected contractionary monetary policy is negatively correlated with corporate stock return and the negative relationship becomes more significant in case of the derivative non-user firms. Financial derivatives usage of the individual firm plays an important role in increasing debt capability and achieving better stock performances.

Financial regulation, exchange rate exposure, and hedging activities: Evidence from Korean firms

ABSTRACT In this article, we attempt to estimate whether firm-specific exchange rate exposures affected by hedging activities can be improved through financial regulation or supervision. To analyze this, we compose three-step estimations by using a sample of KOSPI 200 firms during 1,803 trading days between 2005 and 2012. We first estimate the relationship between exchange rate exposure and hedging activities and see whether financial regulation had any effect on hedging activities. Furthermore, using TSLS analysis, we estimate the effect of hedging activities on exchange rate exposure, which is caused by tightened financial regulation in the form of corporate governance. We report the following findings. First, firms are less likely to be exposed to exchange risk with more hedging activities. Second, corporate governance has a strongly positive effect on the hedging activities. Firms use more hedging tools when they have a strong structure of shareholder’s protection, clear outside ownership, and a better monitoring system; but the relationship becomes weaker in times of crisis.

Revisiting a story of two countries in East Asia after Abenomics

This article provides empirical evidence of the relationship between currency depreciation and stock market return using Korean and Japanese nonfinancial firms’ data. Although the recent FX market circumstances have changed compared to Choi et al. (2010), we can still confirm the beggar-thy-neighbour using the extended sample period. Beggar country may change depending on the sample period, but Eichengreen and Sachs (1985) hypothesis can hold across the different macroeconomic circumstances. Currency depreciation is positively related to stock market return controlling for the firm-specific variables. The result shows that Japanese exporting firms would be advantageous due to the Japanese Yen (JPY) depreciation, and this situation is expected to continue under the Abenomics policy regime.

Estimation of optimality gap using stratified sampling

We construct the optimality gap, which is one form of the validation analysis, with the help of stratified sampling. We show that the stratified sampling procedure is better than the simple random sampling in the estimation of optimality gap.

Regime Shift Model by Three Types of Distribution Considering a Heavy Tail and Dependence

I adopt a regime shift model to investigate a shift of distribution of each regime during a time series data. Unlike previous studies, I applied three types of distribution to use a regime shift model, i.e., normal, GEV and stable distribution, which allows me to consider a heavy tail regime in the model. From some theoretical basis and empirical results, I find that the regime shift model in stable distribution is best appropriate. I also find that tail index of the innovation and dependence measure move together, implying dependence among a consecutive data may lead extreme event and vice versa.

Option Implied Tail Index and Volatility Based on Heavy-tailed Distributions: Evidence from KOSPI 200 Index Options Market

Abstract This paper compares the option implied tail indexes and volatilities from two option pricing formulas based on heavy-tailed distributions: generalized extreme value (GEV) distribution and generalized logistic (GLO) distribution. Option pricing models based on heavy-tailed distributions with three parameters overcome some well-known drawbacks of the Black–Scholes model when the realized underlying asset returns are not normally distributed. Both GEV-based and GLO-based option pricing formulas extract the implied volatilities successfully, indicating that they are compatible with the Black–Scholes formulas. However, GEV-based pricing model shows more unexpected patterns when extracting the implied tail indexes for put options than GLO-based pricing model including the credit crisis in 2008, implying that GEV-based pricing model is less capable of measuring the market sentiment during the extreme crisis events.

Intra and offshore trade in the euro zone and trade imbalances

By examining trade imbalances using 40 countries including Euro-zone countries, we show that the trade imbalance has been exacerbated after joining the Euro zone for the member countries, and the intra trade has greater impact on the imbalance than the offshore trade. For the trade between northern countries and southern countries in the Euro-zone, the imbalance worsens after joining the Euro zone. The bilateral gaps in the government expenditure and the unemployment have significant effect. Excessive government expenditure leads to the increase in the trade imbalance.