Biosecurity risk and peri‐urban landholders – using a stakeholder consultative approach to build a risk communication strategy

This article presents a straightforward and highly participatory methodology for addressing government agencies’ concerns with effective communication strategies for biosecurity when stakeholders are diverse and there is uncertainty about their levels of knowledge. The case study was among peri‐urban landholders in an area where serious animal disease infestation has occurred within the last 10 years. Initially we engaged stakeholders in a consultative process that included establishing a stakeholder influence and interest map for both weeds and animal diseases. This was followed with a mental model approach involving surveys and in‐depth interviews. We elicited information about landholders’ knowledge, practices, values and beliefs regarding biosecurity risk. Our consultative process generated examples that indicate that effective risk communication relies on establishing and affirming mutual levels of trust and credibility between landholders and agencies. While this finding is not surprising, we argue that attention to stakeholder consultative processes is central to overcoming barriers to changing practices and building awareness. Secondly, our data confirmed that while smaller landholders were the initial target for the communication, all landholders represented a similar level of biosecurity risk. Therefore, our approach was critical in overcoming external assumptions about particular actors. Finally, our data pointed to the need to develop a whole of landscape approach to biosecurity risk communication strategy in consultation with local stakeholders.     

The role of perceived costs and perceived benefits in the relationship between personality and risk‐related choices

This paper considers how perceptions of costs and benefits can influence the association between personality and risky choice behaviour. We assessed perceptions and behaviours in six domains (ethical; investment; gambling; health and safety; recreational; social) using the DOSPERT and measured personality using the NEO PI‐R. Results from structural equation modelling showed that personality had a direct effect on risky choice behaviour in four domains (social, ethical, gambling and recreational risk‐taking). In addition, perceived costs and benefits mediated the relations between personality and risk‐taking in the five domains (social, ethical, gambling, recreational and investment risk‐taking). Evidence for a mechanism that integrates both direct and indirect effects of personality on behaviour is discussed.     

Derivatives pricing with marked point processes using tick-by-tick data

I propose to model stock price tick-by-tick data via a non-explosive marked point process. The arrival of trades is driven by a counting process in which the waiting time between trades possesses a Mittag–Leffler survival function and price revisions have an infinitely divisible distribution. I show that the partial-integro-differential equation satisfied by the value of European-style derivatives contains a non-local operator in time-to-maturity known as the Caputo fractional derivative. Numerical examples are provided for a marked point process with conditionally Gaussian and with conditionally CGMY price innovations. Furthermore, the infinitesimal generator of the marked point process derived to price derivatives coincides with that of a Lévy process of either finite or infinite activity.     

The affine Heston model with correlated Gaussian interest rates for pricing hybrid derivatives

In this article we define a multi-factor equity–interest rate hybrid model with non-zero correlation between the stock and interest rate. The equity part is modeled by the Heston model and we use a Gaussian multi-factor short-rate process. By construction, the model fits in the framework of affine diffusion processes, allowing fast calibration to plain vanilla options. We also provide an efficient Monte Carlo simulation scheme.     

Portfolio optimization under model uncertainty and BSDE games

We consider robust optimal portfolio problems for markets modeled by (possibly non-Markovian) Itô–Lévy processes. Mathematically, the situation can be described as a stochastic differential game, where one of the players (the agent) is trying to find the portfolio that maximizes the utility of her terminal wealth, while the other player (“the market”) is controlling some of the unknown parameters of the market (e.g., the underlying probability measure, representing a model uncertainty problem) and is trying to minimize this maximal utility of the agent. This leads to a worst case scenario control problem for the agent. In the Markovian case, such problems can be studied using the Hamilton–Jacobi–Bellman–Isaacs (HJBI) equation, but these methods do not work in the non-Markovian case. We approach the problem by transforming it into a stochastic differential game for backward stochastic differential equations (a BSDE game). Using comparison theorems for BSDEs with jumps we arrive at criteria for the solution of such games in the form of a kind of non-Markovian analogue of the HJBI equation. The results are illustrated by examples.     

Positive return premia in Japan

This paper examines Jensen's [J. Finance, 1968, 23, 389–416] alphas and the time-varying return premia unexplained by standard risk factors in Japan and presents several new findings. First, in contrast to the US experience, positive alphas remain after Fama and French's three factors are applied to excess stock returns in Japan. Second, positive alphas remain in Japan, even if the Fama–French three factors combined with momentum and reversal factors are applied to excess stock returns. Third, the positive return premia unexplained by these five factors bear little relation to the dynamics of the Japanese macroeconomy. Fourth, the time series evolution of the positive return premia indicates autonomous dynamics with at least three regimes. Fifth, we can predict or time the acquisition of the positive return premia for small-size portfolios in Japan by observing the direction and effect of the return premia of large-size portfolios and high-book equity to market equity (BE/ME) portfolios. Finally, application of the self-exciting threshold autoregressive (SETAR) model shows that the size effects are stronger than the BE/ME effects in Japan, given that the return premia from small-size portfolios in the SETAR model are bounded by positive thresholds, while the return premia from high-BE/ME portfolios are bounded by negative thresholds.     

A closer look at return predictability of the US stock market: evidence from new panel variance ratio tests

This paper examines the return predictability of the US stock market using portfolios sorted by size, book-to-market ratio and industry. We use novel panel variance ratio tests, based on the wild bootstrap proposed in this paper, which exhibit desirable size and power properties in small samples. We have found evidence that stock returns have been highly predictable from 1964 to 1996, except for a period leading to the 1987 crash and its aftermath. After 1997, stock returns have been unpredictable overall. At a disaggregated level, we find evidence that large-cap portfolios have been priced more efficiently than small- or medium-cap portfolios; and that the stock returns from high-tech industries are far less predictable than those from non-high-tech industries.     

Commutation functions under Gompertz–Makeham mortality

It is known, but perhaps not well-known, that when the mortality is assumed to be of Gompertz–Makeham-type, the expected remaining life-length and the commutation functions used for calculating the expected values of various types of life insurances can be expressed with an incomplete gamma function with a negative shape parameter. This is not of much use if ones software cannot calculate these values. The aim of this note is to show that one can express the commutation functions using only the exponential function, the (ordinary) gamma function and the gamma distribution function, which are all implemented in common statistical and spreadsheet software. This eliminates the need to evaluate the commutation functions and expected remaining life-length with numerical integration.     

Public expenditures and the unemployment rate in the American states: panel evidence

We reexamine the Unemployment Rate (UR) – government expenditure nexus in a panel of 50 State and Local Governments (SLGs) over the period 1977–2006 to provide new pre-recession empirical evidence that helps put the expectations on the effects of the federal relief to SLGs in a broader context. We found that: (1) per capita real public spending (total and capital, assistance and subsidies, wages and salaries, and social insurance categories) was part of a cointegrating relationship with UR and real per capita state personal income. (2) With the exception of social insurance, other spending variables, when statistically significant, actually had a depressing effect on UR. The magnitude of this effect, however, was generally small. UR was most sensitive to increases in wages and salaries. (3) Long-term causality analysis based on panel error-correction coefficients provided consistent evidence of a causal effect from spending to UR, but less consistent evidence of such effect in the opposite direction. Social insurance, however, drove UR. (4) The size of the error-correction coefficients suggested a slow response of UR to deviations from the cointegrating relationship. (5) The marginal effect of spending on UR increased with the amount of the federal grants received. Our results suggest that public spending may not serve as a quick fix in relation to UR. They also seem to favour allocation of the federal funds to wage and salaries and assistance and subsidies, but not to capital and social insurance expenditures to lower UR.