A unifying approach to risk-measure-based optimal reinsurance problems with practical constraints

The design of optimal reinsurance treaties in the presence of multifarious practical constraints is a substantive but underdeveloped topic in modern risk management. To examine the influence of these constraints on the contract design systematically, this article formulates a generic constrained reinsurance problem where the objective and constraint functions take the form of Lebesgue integrals whose integrands involve the unit-valued derivative of the ceded loss function to be chosen. Such a formulation provides a unifying framework to tackle a wide body of existing and novel distortion-risk-measure-based optimal reinsurance problems with constraints that reflect diverse practical considerations. Prominent examples include insurers’ budgetary, regulatory and reinsurers’ participation constraints. An elementary and intuitive solution scheme based on an extension of the cost–benefit technique in Cheung and Lo [Cheung, K.C. & Lo, A. (2015, in press). Characterizations of optimal reinsurance treaties: a cost–benefit approach Scandinavian Actuarial Journal. doi:10.1080/03461238.2015.1054303.] is proposed and illuminated by analytically identifying the optimal risk-sharing schemes in several concrete optimal reinsurance models of practical interest. Particular emphasis is placed on the economic implications of the above constraints in terms of stimulating or curtailing the demand for reinsurance, and how these constraints serve to reconcile the possibly conflicting objectives of different parties.     

The moderating effects of knowledge characteristics of firms on the financial value of innovative technology products

The development of innovative technology products is both costly and risky, and their economic value is highly uncertain. Based on a sample of 312 innovative technology products introduced between 1987 and 2006 in the U.S. and a long-horizon event study with control firms, we study the impact of innovative technology products on the long-term financial performance of a firm. In particular, we examine how the knowledge characteristics of the firm, which embrace its knowledge absorptive capacity, knowledge impact, and knowledge diversity, moderate such an impact. We find that on average an innovative technology product increases the firm's return on assets (ROA) (relative to control firms) by 2.18% in the second year after product introduction. However, the value of an innovative technology product varies with the knowledge characteristics of the firm that invented it. We find that the financial impact of technology products is stronger when firms have higher knowledge absorptive capacity, and more impactful and less diversified knowledge (as measured by patents). We classify firms into three categories based on their knowledge characteristics. We find that firms with a high knowledge fit increase their ROA by 4.55% after product introduction, while those with a low knowledge fit receive no benefit from the innovative technology products at all.     

Tourism and grey seals in south Devon: management strategies,voluntary controls and tourists’ perceptions of disturbance

Although grey seals are relatively common in Britain, their numbers elsewhere are believed to be decreasing, and some populations in Europe are listed as endangered by the IUCN. This case study focuses on the impacts of seal tourism on a colony of seals on the South Devon coast in the United Kingdom, the effectiveness of current management policies and tourists’ perceptions of the voluntary controls adhered to by tour operators. To monitor impacts, covert observations of the site were undertaken on 60 designated survey days in the summer of 2006, while a survey of tourists taking part in wildlife cruises to the site was conducted during the same period. The observations found that the voluntary codes had reduced disturbance from operators; however, there were still disturbances, mainly from private vessels. The results of the survey showed that tourists were aware of their potential impacts upon the wildlife, and were generally supportive of the voluntary codes in place. Therefore if an honest explanation and interpretation of the potential impacts of seal tourism are provided, it may encourage a protectionist predisposition in wildlife tourists and render the compliance of voluntary codes a highly satisfactory tourist experience rather than a negative one.     

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 pricing of basket-spread options

Since the pioneering paper of Black and Scholes was published in 1973, enormous research effort has been spent on finding a multi-asset variant of their closed-form option pricing formula. In this paper, we generalize the Kirk [Managing Energy Price Risk, 1995] approximate formula for pricing a two-asset spread option to the case of a multi-asset basket-spread option. All the advantageous properties of being simple, accurate and efficient are preserved. As the final formula retains the same functional form as the Black–Scholes formula, all the basket-spread option Greeks are also derived in closed form. Numerical examples demonstrate that the pricing and hedging errors are in general less than 1% relative to the benchmark results obtained by numerical integration or Monte Carlo simulation with 10 million paths. An implicit correction method is further applied to reduce the pricing errors by factors of up to 100. The correction is governed by an unknown parameter, whose optimal value is found by solving a non-linear equation. Owing to its simplicity, the computing time for simultaneous pricing and hedging of basket-spread option with 10 underlying assets or less is kept below 1 ms. When compared against the existing approximation methods, the proposed basket-spread option formula coupled with the implicit correction turns out to be one of the most robust and accurate methods.     

The strategic use of early bird discounts for dealers

We study a widely used ordering process (“Early Bird Discounts”) whereby a profit-maximizing manufacturer permits his dealers to place advance orders at a discount before they set retail prices. We show that such discounts may be used to shift just enough channel profits to dealers to enable them to cover their fixed costs and stay in business. If the manufacturer instead simply cut his wholesale price in order to generate gross margins for his dealers, these margins would soon dissipate as price competition among dealers selling the same product forced retail prices back down to the per-unit cost. We show that when dealer fixed costs are low, the manufacturer offers an Early Bird Discount to his multiple dealers that induces all but two of them to exit; when fixed costs are high, the manufacturer offers no preorder discount (i.e. switches to linear pricing) and induces all but one dealer to exit. Although uniform slotting allowances could also be used to reward dealers, a sales-based alternative like an Early Bird Discount sometimes has a key advantage when the manufacturer has dealers in cities of different sizes. If the same Early Bird Discount is offered, dealers in markets with more consumers, who typically have larger fixed costs, will preorder larger amounts and will automatically receive higher gross margins. To duplicate such payments with slotting allowances, non-uniform allowances would have to be offered to firms in different markets, which is divisive and possibly illegal.     

On tariff changes and firm-production evolution: insights from Turkish manufacturing

We contribute to the yet limited evidence on the relationship between trade liberalisation and a firm's product mix and diversification strategies for an emerging economy, Turkey. Lower import barriers foster firms’ specialisation in their core products. A drop in import tariffs, indeed, enhances a firm's propensity to drop fringe varieties and favours production growth of core products. More importantly, it favours firms’ specialisation in more sophisticated goods. Export tariff cuts, instead, by relaxing competitive pressure at home and lowering the cost to export, only reduce the firms’ incentive to innovate.     

South African consumers' opinions and consumption of soy and soy products

Interest in soy foods has increased with consumer awareness of its health benefits, especially with soy‐related ingredients being utilized as one of the major sources of high‐protein fortification. The aim of the present study was to assess South African (SA) consumers' opinion of soy and soy products through different statements on consumption, taste, protein value and healthiness. The respondents (n = 3001) for this randomized cross‐sectional study were randomly selected from metropolitan and rural areas in South Africa. Trained fieldworkers administered questionnaires by conducting face‐to‐face interviews. Fourteen statements from four sections of the questionnaire (consisting of 17 food‐related topics in total), probing information on consumers' opinion on soy and soy products, were used. Data on 81% of the respondents (n = 2437), who had heard of soy before, were used for statistical analyses. The data were weighted to be representative of the total SA population based on gender, age and race. No practically significant differences among metropolitan and rural respondents' opinion, gender or age variables regarding any statement were found. A practically significant higher percentage (>60%) of respondents in the total population and within all race groups were positive about soy and agreed that soy is a good source of protein, has many health benefits, associated soy with meat substitutes, were aware of a number of meat substitutes and agreed that soy can replace meat in their diet. Medium to large practically significant differences were found between racial groups regarding certain statements. More Blacks and Indians (76% and 68% respectively) than Whites (25%) use soy. Almost two‐thirds of Indians (65%) and Blacks (64%) eat or drink soy products, compared with only 22% for Whites, indicating that the potential target market for soy products should be chosen accordingly. Higher percentages of Blacks than Whites also indicated that they liked the taste of soy, would use more soy if it was readily available and if a bigger product range existed and would replace cow's milk with soy milk, confirming that Blacks are more positive about soy and would use even more soy if a bigger range of soy products were available. The findings from the current study indicated that more than 70% of SA consumers believe that soy has many health benefits and more than 60% already use soy. Insight gained from this first study of its kind in SA provided valuable information to developers and marketers, and signified that consumer segmentation should be taken into consideration to focus on developing more acceptable soy products that appeal to these consumer segments that are more positive towards the taste of soy and might consume soy regularly. Within the discipline of Consumer Science, efforts to inform consumers about the advantages of soy in terms of its health benefits, and to support it in terms of a greater availability of more acceptable soy products at reasonable prices, would support the ideal of informed, responsible buying decisions across all socio‐economic groups.     

East vis‐à‐vis West: The evolution of work values within China regions

Numerous studies have investigated between‐country cultural differences. However, the subnational cultural differences, particularly in emerging markets, have remained an underexplored research topic despite its importance. Likewise, multiperiod studies in the cross‐cultural management area have also remained an underexplored topic. This study concurrently addresses both of these voids in the literature. Specifically, we examine changes in work values of businesspeople in the economically developed East region and the less developed West region of China over the first decade of the 21st century (2000–2010). Our findings show that, across the eight work values dimensions analyzed in this study, three exhibited static crossvergence, while the other five value dimensions exhibited conforming crossvergence. An implication of these findings is that the dissimilar work values, which had been found across the regions of China of the past century, are moving toward a more countrywide set of homogeneous values among the workforce professionals of China.