Citizens’ adaptive or avoiding behavioral response to an emergency message on their mobile phone

Abstract

Since November 2012, Dutch civil defense organizations employ NL-Alert, a cellular broadcast-based warning system to inform the public. Individuals receive a message on their mobile phone about the actual threat, as well as some advice how to deal with the situation at hand. This study reports on the behavioral effects of NL-Alert (n = 643). The current risk communication literature suggested underlying mechanisms as perceived threat, efficacy beliefs, social norms, information sufficiency, and perceived message quality. Results indicate that adaptive behavior and behavioral avoidance can be predicted by subsets of these determinants. Affective and social predictors appear to be more important in this context that socio-cognitive predictors. Implications for the use of cellular broadcast systems like NL-Alert as a warning tool in emergency situations are discussed.     

Talking aggressively about GMOs? Examining the effect of aggressive risk communication with communicator’s facial expression and gender

Abstract

Two experiments (N = 229 and N = 268) assessed the effect of aggressive risk communication about GMOs by a scientist on respondents’ perceptions of message quality and writer (the scientist communicator) likability. We also considered two factors from the communicator that may influence how individuals process aggressive messages – facial expression (study 1) and the gender (study 2). Both studies showed that aggressive communication has a negative effect on both perceived message quality and writer likability, which is explained by the level of negative expectancy violation individuals perceived. Moreover, study 1 showed that smiling appeared to be a negative influence on the outcomes and study 2 showed that gender did not influence how people perceive aggressive messages. The findings provided both scholarly and practical implications for science and risk communication.     

Delivering vaccination messages via interactive channels: examining the interaction among threat,response efficacy,and interactivity in risk communication

New media-based interactive risk communication has gained increasing attention and importance. While extant research has focused on the main effects of interactivity on attitudinal and behavioral outcomes, little research has investigated how risk message content may interact with risk message modality such as interactivity in generating effects, or the psychological processes underlying it. In this study, we examined the interaction effect of interactivity, threat, and response efficacy on individuals’ involvement with risk message, attitudes toward vaccination, and information seeking intention in the context of meningococcal vaccination through a 2 (interactivity: low, high) × 2 (threat: low, high) × 2 (response efficacy: low, high) experiment. Results indicated a significant three-way interaction among interactivity, threat, and response efficacy on message involvement: individuals with high-threat, high-response efficacy perceptions were more involved with the message when it was presented in a more interactive modality. With high-threat, low-response efficacy, the interactive modality of the message did not influence levels of message involvement. Furthermore, message involvement mediated the effect of the three-way interaction among threat, response efficacy, and interaction on information seeking intentions. Implications for future research and practice are discussed.     

Sociology,risk and the environment: a material-semiotic approach

Abstract

Sociology has made significant contributions to the conceptualisation of risk and critique of technical risk analysis. It has, however, unintentionally reinforced the division of labour between the natural/technical and social sciences in risk analysis. This paper argues that the problem with conceptualisations of risk is not a misplaced emphasis on calculation. Rather, it is that we have not adequately dealt with ontological distinctions implicit in both sociological and technical work on risk between material or objective risks and our socially mediated understandings and interpretations of those risks. While acknowledging that risks are simultaneously social and technical, sociologists have not, in practice, provided the conceptual and methodological tools to apprehend risk in a less dualistic manner. This limits our ability both to analyse actors and processes outside the social domain and to explore the recursive relationships between risk calculus, social action and the material outcomes of risk. In response, this paper develops a material-semiotic conceptualisation of risk and provides an assessment of its relevance to more sociologically informed risk governance. It introduces the ideas of co-constitution, emergent entities and enactment as instruments for reconciling the material and social worlds in a sociological study of risk. It further illustrates the application of a material-semiotic approach using these concepts in the nuclear industry. In deconstructing social–material dualisms in the sociology of risk, this paper argues that a material-semiotic conceptualisation of risk enables both technical and social perspectives on risk not only to coexist but to collaborate, widening the scope for interdisciplinary research.     

A ruin model with a resampled environment

ABSTRACT

This paper considers a Cramér–Lundberg risk setting, where the components of the underlying model change over time. We allow the more general setting of the cumulative claim process being modeled as a spectrally positive Lévy process. We provide an intuitively appealing mechanism to create such parameter uncertainty: at Poisson epochs, we resample the model components from a finite number of d settings. It results in a setup that is particularly suited to describe situations in which the risk reserve dynamics are affected by external processes. We extend the classical Cramér–Lundberg approximation (asymptotically characterizing the all-time ruin probability in a light-tailed setting) to this more general setup. In addition, for the situation that the driving Lévy processes are sums of Brownian motions and compound Poisson processes, we find an explicit uniform bound on the ruin probability. In passing we propose an importance-sampling algorithm facilitating efficient estimation, and prove it has bounded relative error. In a series of numerical experiments we assess the accuracy of the asymptotics and bounds, and illustrate that neglecting the resampling can lead to substantial underestimation of the risk.     

Utilitarianism and risk

Abstract

In day-to-day life, we are continuously exposed to different kinds of risk. Unfortunately, avoiding risk can often come at societal or individual costs. Hence, an important task within risk management is deciding how much it can be justified to expose members of society to risk x in order to avoid societal and individual costs y – and vice versa. We can refer to this as the task of setting an acceptable risk threshold. Judging whether a risk threshold is justified requires normative reasoning about what levels of risk exposure that are permissible. One such prominent normative theory is utilitarianism. According to utilitarians, the preferred risk threshold is the one that yields more utility for the most people compared to alternative risk thresholds. In this paper, I investigate whether and the extent to which utilitarian theory can be used to normatively ground a particular risk threshold in this way. In particular, I argue that there are (at least) seven different utilitarian approaches to setting an acceptable risk threshold. I discuss each of these approaches in turn and argue that neither can satisfactorily ground an acceptable risk threshold.     

Media risk communication – what was said by whom and how was it interpreted

The purpose of this paper is to provide some insight into the level and type of media coverage that food risks received and consider the translation of press releases into media articles. Past scientific messages dealing with two food risks (Salmonella and Genetically Modified (GM) potatoes) were collected from various Irish media sources over a defined period. In addition, press releases and helpline data were collected. All data pieces were subsequently coded. Based on the audit it is clear that island of Ireland journalists are generally balanced with regard to their reporting on Salmonella. In most cases where press releases could be linked to the newspaper articles, the press release was represented fairly accurately. This brings into clear focus the need by those issuing press releases to be very clear on the meaning of their message. Journalists are using the press releases as the basis for articles therefore vague terms and overemphasis on a particular finding can result in what may appear as a sensational article. In the case of GMs more sensational hooks were used to draw attention to the articles. Thus communicators need to be aware of the characteristics of the risk they are communicating about when designing and delivering a risk message.     

Learning minimum variance discrete hedging directly from the market

Option hedging is a critical risk management problem in finance. In the Black–Scholes model, it has been recognized that computing a hedging position from the sensitivity of the calibrated model option value function is inadequate in minimizing variance of the option hedge risk, as it fails to capture the model parameter dependence on the underlying price (see e.g. Coleman et al., J. Risk, 2001, 5(6), 63–89; Hull and White, J. Bank. Finance, 2017, 82, 180–190). In this paper, we demonstrate that this issue can exist generally when determining hedging position from the sensitivity of the option function, either calibrated from a parametric model from current option prices or estimated nonparametricaly from historical option prices. Consequently, the sensitivity of the estimated model option function typically does not minimize variance of the hedge risk, even instantaneously. We propose a data-driven approach to directly learn a hedging function from the market data by minimizing variance of the local hedge risk. Using the S&P 500 index daily option data for more than a decade ending in August 2015, we show that the proposed method outperforms the parametric minimum variance hedging method proposed in Hull and White [J. Bank. Finance, 2017, 82, 180–190], as well as minimum variance hedging corrective techniques based on stochastic volatility or local volatility models. Furthermore, we show that the proposed approach achieves significant gain over the implied BS delta hedging for weekly and monthly hedging.     

Risk-managed 52-week high industry momentum,momentum crashes and hedging macroeconomic risk

This is the first study to investigate the profitability of Barroso and Santa-Clara’s [J. Financial Econ., 2015, 116, 111–120] risk-managing approach for George and Hwang’s [J. Finance, 2004, 59, 2145–2176] 52-week high momentum strategy in an industrial portfolio setting. The findings indicate that risk-managing adds value as the Sharpe ratio increases, and the downside risk decreases notably. Even after controlling for the spread of the traditional 52-week high industry momentum strategy in association with standard risk factors, the risk-managed version generates economically and statistically significant pay-offs. Notably, the risk-managed strategy is partially explained by changes in cross-sectional return dispersion, whereas the traditional strategy does not appear to be exposed to such economic risks.     

Pricing and hedging guaranteed minimum withdrawal benefits under a general Lévy framework using the COS method

This paper extends the Fourier-cosine (COS) method to the pricing and hedging of variable annuities embedded with guaranteed minimum withdrawal benefit (GMWB) riders. The COS method facilitates efficient computation of prices and hedge ratios of the GMWB riders when the underlying fund dynamics evolve under the influence of the general class of Lévy processes. Formulae are derived to value the contract at each withdrawal date using a backward recursive dynamic programming algorithm. Numerical comparisons are performed with results presented in Bacinello et al. [Scand. Actuar. J., 2014, 1–20], and Luo and Shevchenko [Int. J. Financ. Eng., 2014, 2, 1–24], to confirm the accuracy of the method. The efficiency of the proposed method is assessed by making comparisons with the approach presented in Bacinello et al. [op. cit.]. We find that the COS method presents highly accurate results with notably fast computational times. The valuation framework forms the basis for GMWB hedging. A local risk minimisation approach to hedging intra-withdrawal date risks is developed. A variety of risk measures are considered for minimisation in the general Lévy framework. While the second moment and variance have been considered in existing literature, we show that the Value-at-Risk (VaR) may also be of interest as a risk measure to minimise risk in variable annuities portfolios.     

Remarks on risk theory

§ 1. The Scheme U(n).

Following remarks are the result of some deliberations which I have made in order to find a simple starting point for rough estimates of the risk reserves necessary under given conditions. They do not appear with any pretensions. The idea, upon which my thoughts were based, is far from original: I have hoped to be able to simplify the theory by simplifying in a high degree the hypotheses and by confining myself to small numbers and arithmetical methods.     

Asymptotic Theory for a Risk Process with a High Dividend Barrier

The only way to avoid ruin in the classical model of the collective risk theory is that the surplus increases to infinity. We consider a modified model with a dividend barrier that prevents this behavior. It is shown that there is a simple approximation formula for the time of ruin when the level of the dividend barrier is high and the Cramér-Lundberg condition is satisfied. A numerical example is presented in the case when the claims are exponentially distributed. The relation to queuing theory is used to derive the proportion of time the surplus is below some given level.     

From insurance risk to credit portfolio management: a new approach to pricing CDOs

We present a new approach for pricing collateralized debt obligations (CDOs) which takes into account the issue of the market incompleteness. In particular, we develop a suitable extension of the actuarial framework proposed by Bayraktar et al. [Valuation of mortality risk via the instantaneous Sharpe ratio: Applications to life annuities. J. Econ. Dyn. Control, 2009, 33, 676–691], Milevsky et al. [Financial valuation of mortality risk via the instantaneous Sharpe-ratio: Applications to pricing pure endowments. Working Paper, 2007. Available at: http://arxiv.org/abs/0705.1302], Young [Pricing life insurance under stochastic mortality via the instantaneous Sharpe ratio: Theorems and proofs. Technical Report, 2007. Available at: http://arxiv.org/abs/0705.1297] and Young [Pricing life insurance under stochastic mortality via the instantaneous Sharpe ratio. Insurance: Math. Econ., 2008, 42, 691–703], which is based on the so-called instantaneous Sharpe ratio. Such a procedure allows us to incorporate the attitude of investors towards risk in a direct and rational way and, in addition, is also suitable for dealing with the often illiquid CDO market. Numerical experiments are presented which reveal that the market incompleteness can have a strong effect on the pricing of CDOs, and allows us to explain the high bid-ask spreads that are frequently observed in the markets.     

An Approach to Fair Valuation of Insurance Liabilities Using the Firm’s Cost of Capital

Abstract

There are two competing and seemingly different methodologies for calculating fair values—the direct and indirect methods. The direct approach has the advantage of providing a more reliable assessment of the risk of financial leverage. The indirect method can be structured to adjust for financial leverage, however, the methodology becomes excessively complex. The advantage of the indirect method is that it can be more easily related to exit prices. Intuitively, an exit price should reflect both the creditworthiness of the firm and the cost of capital of the firm. How are these two concepts related? This paper attempts to advance the fair valuation methodology by addressing these questions and presenting a methodology for deriving the firm or own credit risk assumption (to be used with the direct method) that is consistent with the cost of capital assumption used with the indirect method.     

Ruin probabilities expressed in terms of ladder height distributions

Abstract

During the latest few years much attention has been given to the study of the ruin problem of a risk business when the epochs of claims form a renewal process. The study of this problem was initiated by E. S. Andersen (1957). Thorin has then in a series of papers (Thorin, 1970, 1971a, 1971b) shown that the Wiener-Hopf technique, originally developed by Cramer (1955) in the case of a Poisson process, can be used in this more general case, and Takacs (1970) has derived results similar to those of Thorin by an entirely new technique.     

Extreme downside risk and market turbulence

We investigate the dynamics of the relationship between returns and extreme downside risk in different states of the market by combining the framework of Bali et al. [Is there an intertemporal relation between downside risk and expected returns? Journal of Financial and Quantitative Analysis, 2009, 44, 883–909] with a Markov switching mechanism. We show that the risk-return relationship identified by Bali et al. (2009) is highly significant in the low volatility state but disappears during periods of market turbulence. This is puzzling since it is during such periods that downside risk should be most prominent. We show that the absence of the risk-return relationship in the high volatility state is due to leverage and volatility feedback effects arising from increased persistence in volatility. To better filter out these effects, we propose a simple modification that yields a positive tail risk-return relationship in all states of market volatility.     

Beyond under the dome: an environmental documentary amplified public risk perception about air pollution in China

Abstract

Air pollution is a major environmental problem in China and it poses serious risks to public health. Based on the social amplification of risk framework (SARF), this study examines how media, in particular, an impactful environmental documentary titled Under the Dome, influenced Chinese citizens’ risk perception about air pollution. Survey results showed that exposure to the documentary amplified risk perception and risk perception was significantly related to viewers’ information seeking behaviors, policy support, and individual mitigation action about this issue.     

Variance of the CTE Estimator

Abstract

The Conditional Tail Expectation (CTE), also called Expected Shortfall or Tail-VaR, is a robust, convenient, practical, and coherent measure for quantifying financial risk exposure. The CTE is quickly becoming the preferred measure for statutory balance sheet valuation whenever real-world stochastic methods are used to set liability provisions. We look at some statistical properties of the methods that are commonly used to estimate the CTE and develop a simple formula for the variance of the CTE estimator that is valid in the large sample limit. We also show that the formula works well for finite sample sizes. Formula results are compared with sample values from realworld Monte Carlo simulations for some common loss distributions, including equity-linked annuities with investment guarantees, whole life insurance and operational risks. We develop the CTE variance formula in the general case using a system of biased weights and explore importance sampling, a form of variance reduction, as a way to improve the quality of the estimators for a given sample size. The paper closes with a discussion of practical applications.     

Asymptotic results for the risk process based on marked point processes

Abstract

In this paper asymptotic properties for the risk process will be studied when the number of risk units tends to infinity. The paper extends asymptotic properties for the classical risk process to more general processes. In the classical risk process the claim amounts are assumed independent and identically distributed, and the claim number process is a homogeneous Poisson process.

The key tool is point process theory with associated martingale theory. The results are illustrated by examples.