A corporation is a company or group of people authorized to act as a single entity and recognized as such in law. Early incorporated entities were established by charter, most jurisdictions now allow the creation of new corporations through registration. Corporations chartered in regions where they are distinguished by whether they are allowed to be for profit or not are referred to as for profit and not-for-profit corporations, there is some overlap between stock/non-stock and for profit/not-for-profit in that not-for-profit corporations are always non-stock as well. A for profit corporation is almost always a stock corporation, registered corporations have legal personality and are owned by shareholders whose liability is limited to their investment. Shareholders do not typically actively manage a corporation, shareholders instead elect or appoint a board of directors to control the corporation in a fiduciary capacity, in American English, the word corporation is most often used to describe large business corporations.
In British English and in the Commonwealth countries, the company is more widely used to describe the same sort of entity while the word corporation encompasses all incorporated entities. In American English, the company can include entities such as partnerships that would not be referred to as companies in British English as they are not a separate legal entity. Despite not being human beings, corporations, as far as the law is concerned, are legal persons. Corporations can exercise human rights against real individuals and the state, Corporations can be dissolved either by statutory operation, order of court, or voluntary action on the part of shareholders. Corporations can even be convicted of offenses, such as fraud. However, corporations are not considered living entities in the way humans are. While not a corporation, this new type of entity became very attractive as an alternative for corporations not needing to issue stock, in Germany, the organization was referred to as Gesellschaft mit beschränkter Haftung or GmbH.
In the last quarter of the 20th Century this new form of organization became available in the United States and other countries. Since the GmbH and LLC forms of organization are technically not corporations they will not be discussed in this article, the word corporation derives from corpus, the Latin word for body, or a body of people. By the time of Justinian, Roman law recognized a range of corporate entities under the names universitas and these included the state itself and such private associations as sponsors of a religious cult, burial clubs, political groups, and guilds of craftsmen or traders. Such bodies commonly had the right to own property and make contracts, to receive gifts and legacies, to sue and be sued, private associations were granted designated privileges and liberties by the emperor. Entities which carried on business and were the subjects of rights were found in ancient Rome. In medieval Europe, churches became incorporated, as did local governments, such as the Pope, the point was that the incorporation would survive longer than the lives of any particular member, existing in perpetuity
In finance, the duration of a financial asset that consists of fixed cash flows, for example a bond, is the weighted average of the times until those fixed cash flows are received. The dual use of the duration, as both the weighted average time until repayment and as the percentage change in price, often causes confusion. Strictly speaking, Macaulay duration is the given to the weighted average time until cash flows are received. Modified duration is the given to the price sensitivity and is the percentage change in price for a unit change in yield. Both measures are termed duration and have the numerical value. Macaulay duration is a measure with units in years. For a standard bond the Macaulay duration will be between 0 and the maturity of the bond and it is equal to the maturity if and only if the bond is a zero-coupon bond. Modified duration, on the hand, is a derivative of price. The concept of modified duration can be applied to interest-rate sensitive instruments with non-fixed cash flows, Modified duration is used more often than Macaulay duration.
For every-day use, the equality of the values for Macaulay, similarly, a two-year coupon bond will have Macaulay duration somewhat below 2 years, and modified duration somewhat below 2%. Macaulay duration, named for Frederick Macaulay who introduced the concept, is the average maturity of cash flows. Consider some set of fixed cash flows, in the second expression the fractional term is the ratio of the cash flow P V i to the total PV. These terms add to 1.0 and serve as weights for a weighted average, thus the overall expression is a weighted average of time until cash flow payments, with weight P V i V being the proportion of the assets present value due to cash flow i. For a set of fixed cash flows the weighted average will fall between 0, or more precisely t 1 and the time of the final cash flow. The Macaulay duration will equal the final maturity if and only if there is only a payment at maturity. In symbols, if flows are, in order, then, t 1 ≤ M a c D ≤ t n. In terms of bonds, this means the Macaulay duration will equal the bond maturity only for a zero-coupon bond.
Macaulay duration has the diagrammatic interpretation shown in figure 1 and this represents the bond discussed in the example below - two year maturity with a coupon of 20% and continuously compounded yield of 3. 9605%
International Standard Book Number
The International Standard Book Number is a unique numeric commercial book identifier. An ISBN is assigned to each edition and variation of a book, for example, an e-book, a paperback and a hardcover edition of the same book would each have a different ISBN. The ISBN is 13 digits long if assigned on or after 1 January 2007, the method of assigning an ISBN is nation-based and varies from country to country, often depending on how large the publishing industry is within a country. The initial ISBN configuration of recognition was generated in 1967 based upon the 9-digit Standard Book Numbering created in 1966, the 10-digit ISBN format was developed by the International Organization for Standardization and was published in 1970 as international standard ISO2108. Occasionally, a book may appear without a printed ISBN if it is printed privately or the author does not follow the usual ISBN procedure, this can be rectified later. Another identifier, the International Standard Serial Number, identifies periodical publications such as magazines, the ISBN configuration of recognition was generated in 1967 in the United Kingdom by David Whitaker and in 1968 in the US by Emery Koltay.
The 10-digit ISBN format was developed by the International Organization for Standardization and was published in 1970 as international standard ISO2108, the United Kingdom continued to use the 9-digit SBN code until 1974. The ISO on-line facility only refers back to 1978, an SBN may be converted to an ISBN by prefixing the digit 0. For example, the edition of Mr. J. G. Reeder Returns, published by Hodder in 1965, has SBN340013818 -340 indicating the publisher,01381 their serial number. This can be converted to ISBN 0-340-01381-8, the check digit does not need to be re-calculated, since 1 January 2007, ISBNs have contained 13 digits, a format that is compatible with Bookland European Article Number EAN-13s. An ISBN is assigned to each edition and variation of a book, for example, an ebook, a paperback, and a hardcover edition of the same book would each have a different ISBN. The ISBN is 13 digits long if assigned on or after 1 January 2007, a 13-digit ISBN can be separated into its parts, and when this is done it is customary to separate the parts with hyphens or spaces.
Separating the parts of a 10-digit ISBN is done with either hyphens or spaces, figuring out how to correctly separate a given ISBN number is complicated, because most of the parts do not use a fixed number of digits. ISBN issuance is country-specific, in that ISBNs are issued by the ISBN registration agency that is responsible for country or territory regardless of the publication language. Some ISBN registration agencies are based in national libraries or within ministries of culture, in other cases, the ISBN registration service is provided by organisations such as bibliographic data providers that are not government funded. In Canada, ISBNs are issued at no cost with the purpose of encouraging Canadian culture. In the United Kingdom, United States, and some countries, where the service is provided by non-government-funded organisations. Australia, ISBNs are issued by the library services agency Thorpe-Bowker
Value at risk
For the statistical technique VAR, see Vector autoregression. For the statistic denoted Var or var, see Variance, Value at Risk is a measure of the risk of investments. It estimates how much a set of investments might lose, given normal market conditions, VaR is typically used by firms and regulators in the financial industry to gauge the amount of assets needed to cover possible losses. This assumes mark-to-market pricing, and no trading in the portfolio, informally, a loss of $1 million or more on this portfolio is expected on 1 day out of 20 days. A loss which exceeds the VaR threshold is termed a VaR break, VaR has four main uses in finance, risk management, financial control, financial reporting and computing regulatory capital. VaR is sometimes used in applications as well. Important related ideas are economic capital, stress testing, expected shortfall, common parameters for VaR are 1% and 5% probabilities and one day and two week horizons, although other combinations are in use. The reason for assuming normal markets and no trading, and to restricting loss to things measured in daily accounts, is to make the loss observable.
In some extreme financial events it can be impossible to determine losses, VaR marks the boundary between normal days and extreme events. Institutions can lose far more than the VaR amount, all that can be said is that they not do so very often. The probability level is about equally often specified as one minus the probability of a VaR break and this generally does not lead to confusion because the probability of VaR breaks is almost always small, certainly less than 50%. Although it virtually always represents a loss, VaR is conventionally reported as a positive number, another inconsistency is that VaR is sometimes taken to refer to profit-and-loss at the end of the period, and sometimes as the maximum loss at any point during the period. As people began using multiday VaRs in the half of the 1990s. It is theoretically to deal with a point-in-time estimate versus a maximum over an interval. Therefore, the definition is the most common both in theory and practice today. The definition of VaR is nonconstructive, it specifies a property VaR must have, there is wide scope for interpretation in the definition.
This has led to two types of VaR, one used primarily in risk management and the other primarily for risk measurement. The distinction is not sharp and hybrid versions are used in financial control
In probability theory, the normal distribution is a very common continuous probability distribution. Normal distributions are important in statistics and are used in the natural and social sciences to represent real-valued random variables whose distributions are not known. The normal distribution is useful because of the limit theorem. Physical quantities that are expected to be the sum of independent processes often have distributions that are nearly normal. Moreover, many results and methods can be derived analytically in explicit form when the relevant variables are normally distributed, the normal distribution is sometimes informally called the bell curve. However, many other distributions are bell-shaped, the probability density of the normal distribution is, f =12 π σ2 e −22 σ2 Where, μ is mean or expectation of the distribution. σ is standard deviation σ2 is variance A random variable with a Gaussian distribution is said to be distributed and is called a normal deviate. The simplest case of a distribution is known as the standard normal distribution.
The factor 1 /2 in the exponent ensures that the distribution has unit variance and this function is symmetric around x =0, where it attains its maximum value 1 /2 π and has inflection points at x = +1 and x = −1. Authors may differ on which normal distribution should be called the standard one, the probability density must be scaled by 1 / σ so that the integral is still 1. If Z is a normal deviate, X = Zσ + μ will have a normal distribution with expected value μ. Conversely, if X is a normal deviate, Z = /σ will have a standard normal distribution. Every normal distribution is the exponential of a function, f = e a x 2 + b x + c where a is negative. In this form, the mean value μ is −b/, for the standard normal distribution, a is −1/2, b is zero, and c is − ln /2. The standard Gaussian distribution is denoted with the Greek letter ϕ. The alternative form of the Greek phi letter, φ, is used quite often. The normal distribution is often denoted by N. Thus when a random variable X is distributed normally with mean μ and variance σ2, some authors advocate using the precision τ as the parameter defining the width of the distribution, instead of the deviation σ or the variance σ2
Bank for International Settlements
The BIS carries out its work through its meetings programmes and through the Basel Process – hosting international groups pursuing global financial stability and facilitating their interaction. It provides banking services, but only to central banks and it is based in Basel, with representative offices in Hong Kong and Mexico City. The BIS was established in 1930 by an agreement between Germany, France, the United Kingdom, Japan, the United States. It opened its doors in Basel, Switzerland on 17 May 1930, the need to establish a dedicated institution for this purpose was suggested in 1929 by the Young Committee, and was agreed to in August of that year at a conference at The Hague. A charter for the bank was drafted at the International Bankers Conference at Baden-Baden in November, according to the charter, shares in the bank could be held by individuals and non-governmental entities. The BIS was constituted as having corporate existence in Switzerland on the basis of an agreement with Switzerland acting as headquarters state for the bank and it enjoyed certain immunities in the contracting states.
The BIS’s original task of facilitating World War I reparation payments quickly became obsolete, reparation payments were first suspended and abolished altogether. Instead, the BIS focused on its second statutory task, i. e. fostering the cooperation between its member central banks and it acted as a meeting forum for central banks and provided banking facilities to them. For instance, in the late 1930s, the BIS was instrumental in helping continental European central banks shipping out part of their reserves to London. At the same time, the BIS fell under the spell of the appeasement illusion, however, as the war dragged on evidence mounted that the BIS conducted operations that were helpful to the Germans. Also, throughout the war, the BIS accepted gold from the German Reichsbank in payment for prewar obligations linked to the Young Plan and this in spite of repeated Allied warnings not to accept gold or other assets from Nazi Germany. It transpired that much of gold had been looted by the Germans from the central banks in occupied territories.
Some of this remelted gold included gold rings and other items from labor, operations conducted by the BIS were viewed with increasing suspicion from London and Washington. H. The 1944 Bretton Woods Conference recommended the liquidation of the Bank for International Settlements at the earliest possible moment and this resulted in the BIS being the subject of a disagreement between the U. S. and British delegations. The liquidation of the bank was supported by other European delegates, as well as the United States, but opposed by John Maynard Keynes, head of the British delegation. Fearing that the BIS would be dissolved, Keynes went to Morgenthau hoping to prevent the dissolution, or have it postponed, the liquidation of the bank was never actually undertaken. In April 1945, the new U. S. president Harry S. Truman and the British government suspended the dissolution, after the Second World War, the BIS retained an outspoken European focus. It acted as Agent for the European Payments Union, an intra-European clearing arrangement designed to help the European countries in restoring currency convertibility and free, multilateral trade
Financial Stability Board
The Financial Stability Board is an international body that monitors and makes recommendations about the global financial system. It was established after the 2009 G20 London summit in April 2009 as a successor to the Financial Stability Forum, the Board includes all G20 major economies, FSF members, and the European Commission. It is based in Basel, the Financial Stability Board emerged from the Financial Stability Forum, a group of finance ministries, central bankers, and international financial bodies. The FSF facilitated discussion and co-operation on supervision and surveillance of financial institutions, transactions, FSF was managed by a small secretariat housed at the Bank for International Settlements in Basel, Switzerland. At the G20 summit on November 15,2008 it was agreed that the membership of the FSF will be expanded to include emerging economies, the 2009 G-20 London summit decided to establish a successor to the FSF, the Financial Stability Board. The FSB includes members of the G20 who were not members of FSF, the Financial Stability Forum met in Rome on 28–29 March 2008 in connection with the Bank for International Settlements.
Members discussed current challenges in financial markets, and various options to address them from this point forward. At this meeting, the FSF discussed a report to be delivered to G7 Finance Ministers, the report identifies key weaknesses underlying current financial turmoil, and recommends actions to improve market and institutional resilience. The FSF discussed work underway at the International Monetary Fund and Organisation for Economic Co-operation, the IMF is working closely with SWFs to identify a set of voluntary best practice guidelines, and is focusing on the governance, institutional arrangements and transparency of SWFs. On April 12,2008 the FSF delivered a report to the G7 Finance Ministers which details its recommendations for enhancing the resilience of financial markets and financial institutions. He emphasized the value of specific reforms that had been implemented by the Financial Stability Board stating that these had dampened aftershocks from these events rather than amplifying them, the FSB represents the G-20 leaders first major international institutional innovation.
Secretary of the US Treasury Tim Geithner has described it as in effect, the FSB has been assigned a number of important tasks, working alongside the IMF, World Bank, and WTO. Chairman of the board is the Canadian Mark Carney, Governor of the Bank of England, Financial Stability Board Watch Brookings Institution report The Governance of the Financial Stability Board
Risk is the potential of gaining or losing something of value. Values can be gained or lost when taking risk resulting from an action or inaction. Risk can be defined as the interaction with uncertainty. Uncertainty is a potential and uncontrollable outcome, risk is a consequence of action taken in spite of uncertainty, Risk perception is the subjective judgment people make about the severity and probability of a risk, and may vary person to person. Any human endeavor carries some risk, but some are much riskier than others, the Oxford English Dictionary cites the earliest use of the word in English as of 1621, and the spelling as risk from 1655. It defines risk as, the possibility of loss, injury, or other adverse or unwelcome circumstance, Risk is an uncertain event or condition that, if it occurs, has an effect on at least one objective. The probability of something happening multiplied by the resulting cost or benefit if it does, The possibility that an actual return on an investment will be lower than the expected return.
Insurance, A situation where the probability of a variable is known, a risk is not an uncertainty, a peril, or a hazard. Securities trading, The probability of a loss or drop in value, non-systematic risk is any risk that isnt market-related. Also called non-market risk, extra-market risk or diversifiable risk, Product of the consequence and probability of a hazardous event or phenomenon. For example, the risk of developing cancer is estimated as the probability of developing cancer over a lifetime as a result of exposure to potential carcinogens. The International Organization for Standardization publication ISO31000 / ISO Guide 73,2002 definition of risk is the effect of uncertainty on objectives, in this definition, uncertainties include events and uncertainties caused by ambiguity or a lack of information. It includes both negative and positive impacts on objectives, very different approaches to risk management are taken in different fields, e. g. Risk is the unwanted subset of a set of uncertain outcomes.
Risk can be seen as relating to the probability of future events. For example, according to analysis of information risk, risk is. In computer science this definition is used by The Open Group, OHSAS defines risk as the combination of the probability of a hazard resulting in an adverse event, and the severity of the event. In information security risk is defined as the potential that a threat will exploit vulnerabilities of an asset or group of assets. Financial risk is defined as the unpredictable variability or volatility of returns
Risk management’s objective is to assure uncertainty does not deflect the endeavor from the business goals. There are two types of events i. e. negative events can be classified as risks while positive events are classified as opportunities. Several risk management standards have developed including the Project Management Institute, the National Institute of Standards and Technology, actuarial societies. Certain aspects of many of the risk management standards have come under criticism for having no measurable improvement on risk, whereas the confidence in estimates and decisions seem to increase. For example, it has shown that one in six IT projects experience cost overruns of 200% on average. A widely used vocabulary for risk management is defined by ISO Guide 73,2009, intangible risk management identifies a new type of a risk that has a 100% probability of occurring but is ignored by the organization due to a lack of identification ability. For example, when deficient knowledge is applied to a situation, relationship risk appears when ineffective collaboration occurs.
Process-engagement risk may be an issue when ineffective operational procedures are applied and these risks directly reduce the productivity of knowledge workers, decrease cost-effectiveness, service, reputation, brand value, and earnings quality. Intangible risk management allows management to create immediate value from the identification and reduction of risks that reduce productivity. Risk management faces difficulties in allocating resources and this is the idea of opportunity cost. Resources spent on risk management could have spent on more profitable activities. Again, ideal risk management minimizes spending and minimizes the effects of risks. According to the definition to the risk, the risk is the possibility that an event will occur, risk itself has the uncertainty. Risk management such as COSO ERM, can help managers have a control for their risk. Each company may have different internal components, which leads to different outcomes. For the most part, these methods consist of the elements, more or less.
After establishing the context, the step in the process of managing risk is to identify potential risks. Risks are about events that, when triggered, cause problems or benefits, risk identification can start with the source of our problems and those of our competitors, or with the problem itself
Robert C. Merton
Merton was born in New York City to a Jewish father sociologist Robert K. Merton and mother Suzanne Carhart who was from a multigenerational southern New Jersey Methodist/Quaker family. He grew up in Hastings-on-Hudson, NY and he joined the faculty of the MIT Sloan School of Management, where he taught until 1988. On June 11,2010 it was announced that Merton would retire from Harvard, Merton sits on the QFINANCE Strategic Advisory Board. Merton is the School of Management Distinguished Professor of Finance at the MIT Sloan School of Management, Merton is University Professor Emeritus at Harvard University. He was the George Fisher Baker Professor of Business Administration and John and he previously served on the finance faculty of the Sloan School from 1970 until 1988. Merton received the Alfred Nobel Memorial Prize in Economic Sciences in 1997 for expanding the Black-Scholes formula and he is past President of the American Finance Association, a member of the National Academy of Sciences and a fellow of the American Academy of Arts and Sciences.
He has written on the operation and regulation of financial institutions, Merton has been recognized for translating finance science into practice. He received the inaugural Financial Engineer of the Year Award from the International Association of Financial Engineers in 1993, Derivatives Strategy magazine named him to its Derivatives Hall of Fame as did Risk magazine to its Risk Hall of Fame. He received Risk’s Lifetime Achievement Award for contributions to the field of risk management and his first professional association with a hedge fund came in 1968. His advisor at the time, Paul Samuelson, brought him on board Arbitrage Management Company, to join founder Michael Goodkin, AMC is the first known attempt at computerized arbitrage trading. After a successful run as a hedge fund, AMC was sold to Stuart & Co. in 1971. Merton married June Rose in 1966 and they have three children, two sons and one daughter. In 1993, Merton became a member of the U. S, united States National Academy of Sciences.
In 1997, Merton was awarded the Nobel Memorial Prize in Economic Sciences with Myron Scholes for their work on stock options, in 1999, Merton was awarded a lifetime achievement award in mathematical finance. In 2005 the Baker Library at Harvard University opened The Merton Exhibit in his honor, in 2010, Merton received the Kolmogorov medal. Harvard Business School Resident Scientist, Dimensional Fund Advisors Pension solution Dimensional Managed DC Robert A. Jarrow Speech in Honor of Robert C, Merton 1999 Mathematical Finance Day Lifetime Achievement Award. April 25,1999 Baker Library, About the Merton Exhibit at the Wayback Machine The Kolmogorov Lecture, november 13,2009 Hamilton Medal CME Group Fred Arditti Innovation Award Robert Muh Award Robert C. Merton. Merton at the Mathematics Genealogy Project
Under this approach the banks are allowed to develop their own empirical model to estimate the PD for individual clients or groups of clients. Banks can use this approach only subject to approval from their local regulators, under F-IRB banks are required to use regulators prescribed LGD and other parameters required for calculating the RWA for non-retail portfolios. For retail exposures banks are required to use their own estimates of the IRB parameters, total required capital is calculated as a fixed percentage of the estimated RWA. Some credit assessments in standardised approach refer to unrated assessment, Basel II encourages banks to initiate internal ratings-based approach for measuring credit risks. Banks are expected to be capable of adopting more sophisticated techniques in credit risk management. Banks can determine their own estimation for some components of risk measure, the risk weights for individual exposures are calculated based on the function provided by Basel II. Below are the formulae for some banks’ major products, small-medium enterprise, residential mortgage, basel-II benefits banks to hold lower capital requirement as having corporate customers with lower probability of default.
Basel-II benefits SME customers to be treated differently from corporates, basel-II benefits banks to hold lower capital requirement as having credit card product customers with lower probability of default