Aggregating risk capital, with an application to operational risk

We describe a numerical procedure to obtain bounds on the distribution function of a sum of n dependent risks having fixed marginals. With respect to the existing literature, our method provides improved bounds and can be applied also to large non-homogeneous portfolios of risks. As an application, we compute the VaR-based minimum capital requirement for a portfolio of operational risk losses. JEL Classification G20 · 60E15 · 91B30     

Risk measure pricing and hedging in incomplete markets

This article attempts to extend the complete market option pricing theory to incomplete markets. Instead of eliminating the risk by a perfect hedging portfolio, partial hedging will be adopted and some residual risk at expiration will be tolerated. The risk measure (or risk indifference) prices charged for buying or selling an option are associated to the capital required for dynamic hedging so that the risk exposure will not increase. The associated optimal hedging portfolio is decided by minimizing a convex measure of risk. I will give the definition of risk-efficient options and confirm that options evaluated by risk measure pricing rules are indeed risk-efficient. Relationships to utility indifference pricing and pricing by valuation and stress measures will be discussed. Examples using the shortfall risk measure and average VaR will be shown. The work of Mingxin Xu is supported by the National Science Foundation under grant SES-0518869. I would like to thank Steven Shreve for insightful comments, especially his suggestions to extend the pricing idea from using shortfall risk measure to coherent ones, and to study its relationship to utility based derivative pricing. The comments from the associate editor and the anonymous referee have reshaped the paper into its current version. The paper has benefited from discussions with Freddy Delbaen, Jan Večeř, David Heath, Dmitry Kramkov, Peter Carr, and Joel Avrin.     

The Private Finance Initiative: risk, uncertainty and the state

This paper analyses the UK's Private Finance Initiative (PFI) at a conceptual level by focusing on the management of risk, which is central to the justification for the policy and its application across the public services, and uncertainty, which underlies the role of the state. The paper argues that the rhetorical support for PFI rests on a conflation of risk and uncertainty and that PFI leads to contractual arrangements that are inappropriate for the provision of public services over the medium term.     

Valuing diversity for sustainable futures: A response to Wood and Lenné

The paper addresses the claim made recently in this journal [Wood, D., Lenné, J.M., 2005. ‘Received Wisdom’ in agricultural land use policy: 10 years on from Rio. Land Use Policy 22, 75–93] that in situ agrobiodiversity conservation is anti-development. In particular, I argue that Wood and Lenné appear to have misinterpreted the human ecology paradigm. My proposition is that opportunities are emerging that effectively support local diversity for multiple conservation and development outcomes within marginal agricultural systems.     

财政风险:防范的路径与方法

公共风险是财政风险的源头.防范财政风险,应至少从4个方面入手:一是通过制度创新来控制公共风险,从而有效地减少财政风险;二是减少政府干预公共风险中的各种失误,防范由此而引发新的财政风险;三是建立风险管理机制,打破"风险大锅饭",抑制道德风险,减少风险的积聚和集中;四是增强政府抗风险能力.     

Pricing of Forward and Futures Contracts

There has long been substantial interest in understanding the relative pricing of forward and futures contracts. This has led to the development of two standard theories of forward and futures pricing, namely, the Cost-of-Carry and the Risk Premium (or Unbiased Expectations) hypotheses. These studies have modelled the relationship between spot and forward/futures prices either through a no-arbitrage condition or a general equilibrium setting. Relatively few studies in this area have considered the impact of stochastic trends in the data. With the emergence of non-stationarity and cointegration in recent years, more sophisticated models of futures/forward prices have been specified. This paper surveys the significant contributions made to the literature on the pricing of forward/futures contracts, and examines recent empirical studies pertaining to the estimation and testing of univariate and systems models of futures pricing.     

Risk and capital structure in Asian project finance

We develop and test hypotheses derived from a multi-level theoretical framework for understanding factors shaping the credit risk and capital structure of a quintessentially Asian form of investment known as project finance. It differs from other corporate financing approaches. A project company is separate and bankruptcy remote from the investing firm sponsors that create it. The project company relies extensively on debt capital provided by creditors to fund project operations. Creditors provide more (less) debt as a percentage of overall project capital when there is less (more) risk of project failure and non-repayment. We define a target risk framework identifying country-, industry-, syndicate-, firm-, and project-related factors shaping Asian project finance company credit risk and thus, project debt. In a sample of 238 project finance companies announced in 13 Asian countries from 1995–2004, we observe substantial effects on project capital structure with respect to country-level factors linked to institutional and macroeconomic theories, syndicate structure factors linked to agency theory, and lead sponsor experience and project size factors linked to learning and transaction cost theories. We argue that these and other determinants of project finance company credit risk and capital structure in Asia since the mid-1990s anticipate similar relationships now emerging elsewhere around the globe.

The quality of food risk management in Europe: Perspectives and priorities

In this paper, we address the issue of food risk management as practised in Western Europe. We begin by considering how food risks are managed, and then go on to consider how well they are managed. There are multiple answers to the ‘how well’ question, which are related to the varied perspectives of the different key stakeholders – from the food risk managers and producers, to the general public and the media. Consequently, there is no clear answer to the question of quality. What our review does identify is two priorities relevant to our understanding of effective food risk management: first, a need for further research to determine the source and nature of the different evaluative perspectives, and second, a need for the key stakeholders to appreciate and understand the alternative perspectives in order to enhance the effectiveness of the food risk management process.     

“Surprise Gift” Purchases: Customer Insights from the Small Electrical Appliances Market

Surprise gifts offer more business opportunities than gifts suggested by recipients, because a larger part of the selection and purchase processes can be molded, and such gifts are especially valued by recipients. Yet the extant gift-giving literature explicitly takes into account neither the giver's intention to surprise nor the consequences for the gift selection and purchase processes. The present study investigates surprise gifts from the giver's point of view and disentangles the selection and purchase processes of surprise gifts and gifts that are not meant as surprises. The hypotheses emerge as a consequence of the enhanced pleasure and experiential motivation underlying surprise gifts, as well as their greater inherent perceived risk. According to panel data, design and money-back guarantees are more important for the purchase of surprise gifts (compared with non-surprise gifts), whereas good deals appear less important, and brand name does not seem to matter any more than it does for gifts not intended as a surprise. Also, surprise gifts more often are bought on the spot than non-surprise gifts, without extended information search (similar to impulse purchases), by women alone, and for someone within the household. Finally, the giver usually has a poorer idea of what he or she wants to buy before entering the shop and visits fewer stores to purchase surprise gifts. However, the last three results apply only to appliances which often serve as gifts. These insights lead to significant managerial implications for retailers and manufacturers.     

国有股权、经营风险、预算软约束与公司业绩:中国上市公司的实证发现

以中国上市公司为例,本文首次采用分量回归模型实证分析了国有股权对公司业绩的复杂影响。我们发现:在经营表现较差的上市公司,国有股东监督内部人的积极作用超过了行政或政治干预公司经营的消极作用;而在经营表现较好的上市公司,以上作用没有显著差异。源自国有股权并受经营风险影响的上市公司的预算软约束预期损害了所有公司的业绩。与经营表现较好的公司相比,在经营表现最差的公司,国有股东监督内部人的积极作用以及国有股权导致的预算软约束预期的消极作用都更为显著。虽然国有股权对公司业绩影响的净效果在所有上市公司中都为负,但在业绩最差的上市公司里负面作用最为突出。政策含义在于国有股权的调整应当从业绩最差的上市公司开始。