The valuation of nature-linked bonds with exchange rate risk

This paper develops an arbitrage approach to pricing insurance bonds that bear currency risk. Bondholders are shown to have a short position on path-dependent digital options written on risk-tracking indices. It implements the technique of forward-neutral change of numeraire and comes down to computing first-passage-time distributions of drifted Brownian motions. We derive closed-form formulas or perform simulations depending on whether interest rates are deterministic or stochastic. Along the way, we evaluate outside-barrier currency call options. Then this research studies the effects of both nature risk and exchange rate uncertainty and shows that the former is more significant than the latter.     

The Impact of Electronic Clock Auction Systems on Shellfish Prices: Econometric Evidence from a Structural Change Model

Economic theory suggests that different auction systems may lead to different price equilibria under specific conditions. By changing the trading rules, the introduction of electronic clock auction systems (ECAS) on primary fish markets is likely to modify the price formation process. A relationship between the prices of live prawns (Nephrops norvegicus) in two French ports where different ECAS have been successively introduced is estimated through two univariate models and a vector autoregressive model applied to stationary weekly data series. Using a recent multiple break searching procedure (Econometrica, Vol. 66, 1998, 47; Journal of Applied Econometrics, Vol. 18, 2003, 1; Econometrics Journal, Vol. 6, 2003, 72), a single structural change matching the date of implementation is discovered in the two ports and shows a different impact partly explained by the type of auction system in force. The introduction of the Euro in January 2002 also appeared to play an influential role in the adoption of electronic clock auction markets.     

Preventing merger unilateral effects: A Nash–Cournot approach to asset divestitures

This paper aims to analyze the effectiveness of asset transfers in preventing unilateral effects of a merger. We show that asset divestitures allow the remedying of certain price increases. Market size negatively impacts the scope of the divestiture package, while the number of merging firms increases with it. In spite of the required asset sale, parties’ profitability remains ensured in most cases. Buyers always make profit from their purchase if industry fixed costs are rather low. We also add the alternative of a second buyer and compare outcomes with both consumer and welfare standards. Furthermore, as many mergers lead to efficiency gains, we integrate specific cost synergies and show that the higher the synergies, the smaller the divestiture share. In the case when no buyers are available, we show that the option of divesting to a start-up entity is bound to fail if firms’ technology remains the same. Lastly, we find that product differentiation can reduce the efficiency of the asset transfer.     

North South Trade and Supervision of the Social Quality of Goods from the South

This text presents a duopolistic North/South model where the Southern firm can choose to produce ethically or not and to lie or not about the real social quality of its production. The goods from the South are assumed to be ethically unsound (i.e. dubious social content) while those from the North ethically sound. We then study the consequences of monitoring ethics in the North on the nature (fair or unfair) and the volume of North–South trade. On the one hand, an increase in the probability of inspection of goods from the South leads to an increase in imports to the North from the South. This result goes against the idea that this kind of social monitoring is akin to a protectionist measure. On the other hand, if monitoring is large enough that leads the Southern firm to produce ethically and the trade to be fair.     

Beyond the Stern Review: Lessons from a risky venture at the limits of the cost-benefit analysis

This paper argues that debates amongst economists triggered by the Stern Review are partly relevant, focusing on key parameters translating real ethical issues, and partly misplaced in that they do not consider enough other determinants of climate change damages: i) the specifications of the utility function used for the assessments (preference for the environment, preference for smooth growth paths), ii) the interplay between uncertainty and the sequentiality of the decision, and iii) whether the growth engines behind the integrated assessment models can account for transient disequilibrium and sub-optimality. We derive some suggestions for any future research agenda in integrated assessment modelling, whatever the position of the analysts about the relevance of the intertemporal optimisation framework and the Bayesian approach to uncertainty in the climate affair.     

Fruit and Vegetable Consumption Patterns: A Segmentation Approach

In this article, we study the heterogeneity of fruit and vegetable consumption patterns in France. A finite mixture of AIDS models is used to describe food demand patterns revealing different preferences over distinct classes. We obtained six different clusters, which reflect specific socio-demographic characteristics and different income and price elasticities. This approach is appropriate for targeting specific public nutritional policies. Our main results show that unlike the other clusters in which the usual price and income policy tools may be used, the lowest income cluster with the lowest consumption, remains insensitive to economic variables.     

MitraClip therapy in mitral regurgitation: a Markov model for the cost-effectiveness of a new therapeutic option

Introduction Mitral regurgitation is a heart condition resulting from blood flowing from the left ventricle towards the left atrium, increasing the risk of heart failure and mortality. While surgery can greatly reduce these risks, some patients are not eligible, resulting in medication being their only therapeutic alternative. The MitraClip (Abbot Vascular) is a medical device that is percutaneously implanted and designed to eliminate leaking of the mitral valve.

Methods The efficacy of the MitraClip strategy vs medical management was assessed using a 4-state Markov model based on the mitral regurgitation grade (mitral regurgitation grade 0, I/II, and III/IV, and death). At each 1-month cycle, patients were or were not hospitalized. The model analyzed a fictional population of 1000 patients over a 5-year period from a national Health Insurance perspective. The primary end-point was the number of deaths avoided. Data from the EVEREST II High Risk Study patients were used along with a literature review.

Results At 5 years, among the 1000 patients, 276 deaths were found to be avoidable with the MitraClip strategy. The incremental cost-effectiveness ratio (ICER) was €93,363 per death avoided. The annual ICER was calculated to take into consideration excess costs resulting from the MitraClip over the first year (€29,984 vs €8557 for the reference strategy) and the reduction of costs in following years (€3122 for MitraClip vs €8557 for reference strategy). Thus, the mean ICER was calculated to be €20,720 per death avoided.

Conclusion The MitraClip is a novel alternative therapy for mitral insufficiency in patients ineligible for surgery that may offer a medico-economic advantage.     

Partial Hedging for Equity-Linked Products Using Risk-Minimizing Strategies

In this article, we consider the pricing and hedging of equity-indexed annuities (EIAs) using local risk-minimizing strategies as well as evaluating the capital requirement for these products. Since these products involve mortality as well as financial risks, we integrate mortality risk and propose partial hedging strategies that protect the insurer based on risk measures. The framework we present makes use of sequential local risk-minimizing strategies to take into account all intermediate requirements. To demonstrate the flexibility of this framework we present numerical examples featuring point-to-point EIAs with a two-state regime-switching equity model.     

Front-line responses to customer orientation programmes: a theoretical and empirical analysis

Programmes designed to strengthen customer orientation among front-line service workers represent one of the most common forms of culture change initiatives within service organizations. Despite their importance to contemporary management theory and practice, we know relatively little about how employees react to interventions of this kind, and why they react as they do. The paper aims to address this gap in the literature. It does this through an analysis of front line reactions to a major customer care initiative in one of the largest supermarket chains in the UK. Using data from a large-scale employee survey carried out in seven stores, we first propose a general typology of employee responses to customer care programmes. We then examine some typical employee profiles associated with the main types of response. The analysis is placed within a wider theoretical context consisting of a critical overview of the main theories which might help explain the nature of general and individual reactions to culture change programmes. To this end, we address and draw upon a variety of literatures and debates linked to various aspects of organization and management, industrial psychology, training and development and critical discourse analysis.     

A New Premium Principle for Equity‐Indexed Annuities

In this article, we introduce a premium principle for equity‐indexed annuities (EIAs). Traditional actuarial loadings that protect insurance companies against risks cannot be extended to the valuation of EIAs since these products are embedded with various financial guarantees. We proposed a loaded premium that protects the issuers against the financial and mortality risks. We first obtain the fair premium based on a fair value of the equity‐linked contract using arbitrage‐free theory. Assuming a specific risk level for hedging errors, we obtain a new participation rate based on a security loading. A detailed numerical analysis is performed for a point‐to‐point EIA.