Valverde, Raul (2014) A Supply Chain Financial Management Insurance Model for the Protection of Corporations Against the Bankruptcy of Suppliers by Using the Black-Scholes-Merton Model. Masters thesis, University of the West of England.
Preview |
Text (application/pdf)
1MBMscDissertation_RV_V15.pdf - Accepted Version |
Abstract
Many banks provide supply-chain finance solutions that might include insurance services that further mitigate trade risk such as the default of suppliers. This study proposes the development of an insurance model that uses the Black-Scholes-Merton Model (BSM) (1973) for default prediction and risk pooling management techniques as a way to reduce the risk due to supplier bankruptcy and estimate an insurance premium that banks can use to charge this service to their customers. In order to demonstrate the use of the proposed insurance model, a sample of companies is selected from the New York Stock exchange and data for historical stock prices from the CRSP database (Center for Research in Security Prices) is collected in order to calculate the probability of bankruptcy of a sample of suppliers from different industries by using the BSM model. Twelve pools of companies of different sizes are created and a VBA program for Excel is developed in order to calculate probability of bankruptcy tables of companies belonging to the different pools. A Monte Carlo simulation to simulate the impact on risk and expected losses on the number of insurance policies sold is implemented with the use of simulation software. The results show that the simulation is useful to estimate the number of sold policies required in order to reduce the risk to a minimum level and predict with a high level of certainty the losses due to bankruptcy of suppliers. The expected losses for a risk pool can be used by a financial institution in order to price an insurance contract that hedges a company against the risk of default of suppliers.
| Item Type: | Thesis (Masters) |
|---|---|
| Authors: | Valverde, Raul |
| Institution: | University of the West of England |
| Degree Name: | M. Sc. |
| Program: | Accounting and Financial Management (Supply Chain Management specialization) |
| Date: | 9 September 2014 |
| Thesis Supervisor(s): | Vendrame, Vasco |
| ID Code: | 980228 |
| Deposited By: | Raul Valverde |
| Deposited On: | 23 Jun 2021 15:43 |
| Last Modified: | 28 Jun 2021 22:50 |
References:
Altman, E. I. (2000). Predicting financial distress of companies: revisiting the Z-score and ZETA models, Stern School of Business, New York University pp. 9-12.Black F. and M. Scholes, (1973) ‘The Pricing of Options and Corporate Liabilities’, The Journal of Political Economy Vol 81(3) pp 637-654 .
Cohen, M. A., and Huchzermeier, A. (1999) ‘Global supply chain network management under price/exchange rate risk and demand uncertainty”, Logistics in the Information Age. SGE Ditorali, pp 219-234.
Deleris, L. A., Elkins, D., and Paté-Cornell, M. E. (2004) ‘Analyzing losses from hazard exposure: a conservative probabilistic estimate using supply chain risk simulation’ In Simulation Conference, 2004. Proceedings of the 2004 Winter (Vol. 2, pp. 1384-1391). IEEE.
Florez-Lopez, R. and Jeronimo J.M.R. (2013) ‘Modelling credit risk with scarce default data: on the suitability of cooperative bootstrapped strategies for small low-default portfolios’ Journal of the Operational Research Society Vol 65 (3) pp. 416-434.
Grice, J. S., and Ingram, R. W. (2001). Tests of the generalizability of Altman's bankruptcy prediction model. Journal of Business Research, Vol 54(1), pp. 53-61.
Grittner, D. H., and Valverde, R. (2012) ‘An object–oriented supply chain simulation for products with high service level requirements in the embedded devices industry’ International Journal of Business Performance and Supply Chain Modelling Vol 4(3) pp 246-270.
Hillegeist, S. A., Keating, E. K., Cram, D. P., and Lundstedt, K. G. (2004) ‘Assessing the probability of bankruptcy’ Review of Accounting Studies, Vol 9(1) pp 5-34.
Hull, J. (2012) Risk Management and Financial Institutions, John Wiley & Sons.
Killen & Associates (2002) ‘Optimizing the Financial Supply Chain : How CFO of Global Enterprises are Succeeding by Substituting Information for Working Capital’, Killen and Associates, Report, Palo Alto, CA.
Khan, N., & Valverde, R. (2014). The use of RFID based supply chain systems in data centers for the improvement of the performance of financial institutions. Engineering Management Research, Vol 3(1), p24.
Kraus, C., & Valverde, R. (2014). A DATA WAREHOUSE DESIGN FOR THE DETECTION OF FRAUD IN THE SUPPLY CHAIN BY USING THE BENFORD’S LAW. American Journal of Ap-plied Sciences, Vol 11(9), 1507-1518.
Korn, R., Korn, E., & Kroisandt, G. (2010). Monte Carlo methods and models in finance and insurance. CRC press.
Lamoureux, J. F., and Evans, T. (2011) ‘Supply Chain Finance: A New Means to Support the Com-petitiveness and Resilience of Global Value Chains’ Export Development, Canada [ONLINE] Available at: http://www.international.gc.ca/economist-economiste/assets/pdfs/research/TPR_2011_GVC/12_Lamoureux_and_Evans_e_FINAL.pdf. [Accessed 29 April 2014]
Levi, D.S. P.Kaminsky and E. Simchi-Levi (2003). ‘Chapter 3: Inventory Management and Risk Pooling’; Designing & Managing the Supply Chain, Second Edition (p-66).
Merton, R. C., 1974, ‘On the pricing of corporate debt: The risk structure of interest rates’, Journal of Finance 29, pp. 449-470.
Milne, R. (2010), ‘Early Warnings in the Supply Chain’, Financial Times Europe, No. 36957,pp. 10.
McDonald, R. L., Cassano, M., and Fahlenbrach, R, (2006). Derivatives Markets. 2 Edition. Addison-Wesley, Boston.
Pindyck, R. S., and Rubinfeld D. L (2005). Microeconomics. Upper Saddle River, NJ: Pearson Pren-tice Hall.
Popa, V. (2013). ‘The Financial Supply Chain Management: a New Solution for Supply Chain Resil-ience’. The AMFITEATRU ECONOMIC journal, Vol 15(33), pp. 140-153.
Qin, Z., and Ding, X. (2011) ‘Risk Migration in Supply Chain Inventory Financing Service’ Journal of Service Science & Management, Vol 4(2), pp. 221-226.
Remenyi, D. Williams, B. Money, A. and Swartz, E. 1(998), Doing research in business and man-agement: An introduction to process and method. Sage Publications, London.
Stephens, J., & Valverde, R. (2013). Security of e-procurement transactions in supply chain reengi-neering. Computer and Information Science, Vol 6(3), p1.
Shi, D. (2004) ‘A review of enterprise supply chain risk management’ Journal of systems science and systems engineering, Vol 13(2), pp. 219-244.
Stefanovic, D., and Stefanovic, N. (2008) ‘Methodology for modeling and analysis of supply networks’ Journal of Intelligent Manufacturing Vol19(4), pp. 485-503.
Wagner, S.M and J.L Johnson (2004) ‘Configuring and managing strategic supplier portfolios’, In-dustrial Marketing Management, vol 3(8) pp. 717-730.
Valverde, R. (2011). A Business Intelligence System for Risk Management in the Real Estate Industry. International Journal of Computer Applications, 27(2), 14-22.
Valverde, R. (Ed.). (2012). Information Systems Reengineering for Modern Business Systems: ERP, Supply Chain and E-Commerce Management Solutions: ERP, Supply Chain and E-Commerce Management Solutions. IGI Global.
Valverde, R., & Saadé, R. G. (2015). The Effect of E-Supply Chain Management Systems in the North American Electronic Manufacturing Services Industry. Journal of theoretical and applied electronic commerce research, 10(1), 79-98.
Valverde, R., & Talla, M. (2013). Risk Reduction of the Supply Chain Through Pooling Losses in Case of Bankruptcy of Suppliers Using the Black-Scholes-Merton Pricing Model, Some Recent Advances in Mathematics and Statistics, World Scientific.
Zsidisin, G. A., and Wagner, S. M. (2010) ‘Do perceptions become reality? The moderating role of supply chain resiliency on disruption occurrence’ Journal of Business Logistics, Vol 31(2), pp. 1-20.
Repository Staff Only: item control page
Download Statistics
Download Statistics