Model risk in credit risk

We provide sharp analytical upper and lower bounds for value‐at‐risk (VaR) and sharp bounds for expected shortfall (ES) of portfolios of any dimension subject to default risk. To do so, the main methodological contribution of the paper consists in analytically finding the convex hull generators for the class of exchangeable Bernoulli variables with given mean and for the class of exchangeable Bernoulli variables with given mean and correlation in any dimension. Using these analytical results, we first describe all possible dependence structures for default, in the class of finite sequences of exchangeable Bernoulli random variables. We then measure how model risk affects VaR and ES.     

Pricing and Hedging Credit Derivatives with Copulas

In this paper, we apply a copula function pricing technique to the evaluation of credit derivatives, namely a vulnerable default put option and a credit switch. Also in this case, copulas enable one to separate the specification of marginal default probabilities from their dependence structure. Their use is based here on no–arbitrage arguments, which provide pricing bounds and easy–to–implement super–replication strategies.
At a second stage, we specify the copula function to be a mixture one. In this case, we obtain closed form prices and hedges, which we calibrate on real market data. For the sake of comparison, we add a Clayton calibration.
(J.E.L: G11, G12).     

Parametric and Non‐Parametric Estimates of Willingness to Pay for Forest Recreation in Northern Ireland: A Discrete Choice Contingent Valuation Study with Follow‐Ups

In this study we show that forest areas contribute significantly to the estimated benefits from outdoor recreation in Northern Ireland. Secondly we provide empirical evidence of the gains in the statistical efficiency of both benefit and parameter estimates obtained by analysing follow‐up responses with Double Bounded interval data analysis. As these gains are considerable, it is clearly worth considering this method in CVM survey design even when moderately large sample sizes are used. Finally we demonstrate that estimates of means and medians of WTP distributions for access to forest recreation show plausible magnitude, are consistent with previous UK studies, and converge across parametric and non‐parametric methods of estimation.     

Eliciting Consumer Preferences for Certified Animal‐Friendly Foods: Can Elements of the Theory of Planned Behavior Improve Choice Experiment Analysis?

Models used in neoclassical economics assume human behavior to be purely rational. On the other hand, models adopted in social and behavioral psychology are founded on the “black box” of human cognition. In view of these observations, this paper aims at bridging this gap by introducing psychological constructs in the well‐established microeconomic framework of choice behavior based on random utility theory. In particular, it combines constructs developed employing Ajzen's theory of planned behavior with Lancaster's theory of consumer demand for product characteristics to explain stated preferences over certified animal‐friendly foods (AFF). To reach this objective, a Web survey was administered in the largest five EU‐25 countries: France, Germany, Italy, Spain, and the United Kingdom. Findings identify some salient cross‐cultural differences between northern and southern Europe and suggest that psychological constructs developed using the Ajzen model are useful in explaining heterogeneity of preferences. Implications for policymakers and marketers involved with certified AFF are discussed.     

Quality improvement and redesign of performance measurement systems: an application to the academic field

The increasing competition both in the public and private sectors gave rise to a growing interest in quality improvement and in designing and implementing Performance Measurement Systems (PMS). Academic organizations also recognized the need for implementing performance measurement systems. Some recent works on PMS in the higher education make use of the Kaplan and Norton’s Balanced Scorecard (BSC) to translate the characteristic strategic goals (e.g. research and teaching excellence) into performance measures. However, a PMS needs to be updated when external or internal changes influence the organization modus operandi. In this way a continuous quality improvement of organization performance is required. This paper describes a methodology based on the BSC model to redesign a current PMS. In detail, a reference BSC-check matrix is proposed. A “mapping analysis” of the current PMS is developed to understand if all the operational aspects involved in goals achievement are considered and if proper indicators have been defined. As an example, the methodology is applied to a Department of the authors’ own University. The paper shows also how the proposed approach can be extended to other contexts.     

The environmental,social and economic effects of recent technological changes in sugarcane on the State of São Paulo,Brazil

From 2007 to 2017, the Agro‐Environmental Protocol of the Sugar and Energy Sector was in force, an agreement between sugarcane mill owners and the State Government of São Paulo, Brazil, proposing to eliminate sugarcane burning as a method to facilitate the harvest. Simultaneously, the sugarcane harvest was becoming widely mechanized while, under the interests of capital accumulation, the mills were entering the information and communication technology era and providing the agricultural processes with more precise and immediate management and technological controls, similar to those implemented in the mills' administrative and industrial operations in the 1990s. Short‐term factors, including environmental factors, favoured sugarcane technological changes. As a result, there was a mass layoff of rural workers and an increasing number of people/workers in agricultural mechanization, transportation and maintenance of machinery and administrative as well. The whole process highlighted the differences between mills, resulting in small and medium sugarcane farmers and mills to become the most impacted, in operational and financial terms, by the accelerating mechanization of the sugarcane industry as a whole.     

Time-consistency of risk measures: how strong is such a property?

Decisions in Economics and Finance - Quite recently, a great interest has been devoted to time-consistency of risk measures in its different formulations (see Delbaen in Memoriam Paul-André...