Financial risk management models in conditions of economic uncertainty

Abstract

Financial risks affect the level of economic uncertainty, slowing down or accelerating economic growth. In developing countries, financial risks are much higher, and credit risks are one of the most acute problems in the financial sector. Unforeseen negative shocks lead to an increase in the level of risks in the financial system, and therefore its ability to effectively allocate financial resources for the purposes of economic growth. In this regard, the current task is to use effective models for their measurement and management, which allows responding to financial risks depending on the degree of their impact on the economy. The article examines the advantages and disadvantages of models for managing and assessing financial risks, the practice of their application in developing countries for measuring volatility. The feasibility of using GARCH and EGARCH (1,1) models for modeling the volatility of financial risks in Ukraine in wartime conditions of economic development is determined. The results of the GARCH model revealed a slight change in the volatility of the dollar and euro exchange rate, inflation risk, but a significantly higher change in the volatility of credit risk. At the same time, new negative shocks significantly affect currency and inflation risks, but do not affect credit risks. High inertia of credit risk volatility, average inertia of dollar exchange rate and inflation volatility, lack of inertia and persistence of euro exchange rate volatility were revealed. The results of the EGARCH (1,1) model revealed the presence of statistically significant volatility of credit, currency and inflation risks in Ukraine with different levels of intensity and degree of asymmetry of shocks. The results obtained confirm that changes in exchange rates, credit conditions and inflation processes are sources of financial volatility and lead to increased economic uncertainty.