Isolating the disaster risk premium with equity options

The US equity risk premium is approximated with a mean unhedged equity return. I utilize out-of-the-money put options to obtain a hedged equity return, which allows me to quantify the disaster risk premium as the difference between the means of unhedged and hedged equity returns. I demonstrate that a substantial fraction of the U.S. equity risk premium over the period from 1996 to 2016 is attributed to disasters defined as stock price depreciations below a pre-specified strike price. Employing alternative hedging schemes increases the contribution of disasters to the equity risk premium.     

Assessing risk-taking: what to measure and how to measure it

Abstract

Risk-taking has been a major field of interest for scientists and for applied purposes since decades. However, many researchers have noted that the current measurement instruments fail to show adequate validity and predictive power. Given the recent calls to develop new measures, this paper aims to highlight six key points that should be kept in mind when constructing or using measures of risk-taking concepts. Specifically, we encourage risk-taking scholars (a) to pay close attention to the terminology used in studies, (b) to distinguish measures of general and specific risk-taking, (c) to distinguish risk-taking from the appeal of risky activities, (d) to keep in mind the subjectivity of risk-taking, (e) to consider the measurement of passive risk-taking, and (f) to favour more realistic risk-taking tasks. Overall, these recommendations should help researchers to design and use more relevant risk-taking measures.     

Vulnerability,values and heterogeneity: one step further to understand risk perception and behaviour

The aim is to investigate differences in risk perception and behaviour among different population groups selected by gender, age, country of birth, disability and sexual orientation in the light of general values and vulnerability. The analyses use data from two Swedish national surveys from 2005 to 2008. People with foreign background perceive controlled and dread risks as a greater threat than do native-born people, but there is no difference in behaviour when general values and vulnerability have been controlled for. Compared to women, men rate known and dread risks as lower, but controlled risks as higher. Further, men’s behaviour is more risk-oriented and less risk-reducing, and homosexuals and bisexuals are more likely than heterosexuals to report risk behaviour. Compared to previous studies of the so-called White Male Effect carried out in the USA, gender does not play a similar role in Sweden. On the contrary, it seems as if gender is of less importance and that the strength of the association varies depending on type of risk or risk behaviour.     

The new political importance of the old hurricane risk: a contextual approach to understanding contemporary struggles with hurricane risk and insurance

In the United States, policy-makers struggle to resolve conflict between public demands for affordable insurance costs covering hurricanes and market demands for risk-based insurance pricing. Given the socially constructed nature of risk, a risk-based pricing approach prioritizes insurer values and business practices over all societal value goals expressly limiting democratic inclusion in decision-making about risk. As a step towards the more democratically inclusive approach of risk governance, this article uses the state of Florida as a case study to provide a narrative of the social and political context for the evolution of the idea of U.S. hurricane risk. I argue that today’s hurricane risk is a product of long-standing shared efforts to build prosperity. However, it is no longer a simple risk for society to overcome on its way to economic well-being. Contemporary hurricane risk is systemic and serves as a nexus for political battles over American values.     

Rating of worry about energy sources with respect to public health,environmental health,and workers

Environmental risks of different energy sources pose a significant problem for managers, decision-makers, and the general public. Attitudes and perceptions may differ by type of energy, as well as the recipient of the harm. A post-Fukushima survey of students and others in a university community in central New Jersey was conducted to determine how much people worried about the potential effects of different energy types (nuclear, chemical, coal, hydroelectric, solar, wind, and gas), which aspect they worried about (public health, workers, and the environment), and which form they thought the USA should further develop. Ratings for worry varied significantly by energy type and receptor type. In general, worry was greater for all aspects of chemical, coal, nuclear, and gas, and significantly less for hydro, solar, and wind. Worry was generally higher for exposure from the plant, exposure from food and water, exposure to workers, and exposure for wildlife than for either transportation issues or exposure from everyday occurrences. The same exposures (or targets) were rated for each energy source. The greatest worry for each energy type was as follows: (1) nuclear exposure to radiation in food, although worker exposure and exposure from the plant were very close, (2) chemical exposure was from accidents in the plant, (3) coal was from harmful effects of mercury on wildlife, (4) hydro was from contamination of drinking water, (5) solar was from harmful UV radiation exposure in wildlife, (6) wind was from mortality of birds due to wind turbines, and (7) gas was from harmful gas exposure to wildlife. Overall, the highest rated features in terms of worry (four of seven energy forms) were for wildlife. The survey population believed that wind, solar, tidal, and hydro power should be developed further, and coal should be developed the least.