Different Sources Of Risk Research Articles

Paternalism at a crossroads: labour relations in Chile in transition

PurposePaternalism in labour relationships is characteristic of Chilean and Latin American firms. Despite its empirical and practical relevance it lacks adequate conceptual elaboration so that it remains an opaque real drive that cannot be managed. This paper seeks to propose some conceptual distinctions to help clarify its meaning.Design/methodology/approachUsing the social systems theory of Niklas Luhmann, paternalism is analysed as semantics which makes three main aspects visible: interests, autonomous decisions and responsibility that are seen as different sources of risk and danger for the workers. Paternalism is allegedly a protective device.FindingsPaternalism is reinforced and reproduced by distrust in the workers' capacities to make decisions on their own and it becomes a justification to keep wages low, hinder delegation and becomes an ideology that justifies gaps between productivity and compensation.Research limitations/implicationsPaternalism is difficult to operationalize in order to make empirical observations, but through qualitative analysis we were able to characterize it with two examples. This will help empirical research to continue on a more appropriate conceptual basis.Practical implicationsHRM practices should consider that paternalism is present as an expectation and that management should know that it can also pervade administration despite its modernized appearance.Originality/valueSince paternalism pervades expectations in opaque ways, it sets limits to management's capacities to administer human resources in a modern way. Awareness of this fact allows its comprehension and the ability to properly deal with it.

Demand for environmental policies to improve health: Evaluating community-level policy scenarios

Using a national survey and a discrete choice experiment format, we estimate demand for environmental polices to improve health. We use a richly detailed community-level approach that describes illnesses avoided, premature deaths avoided, policy duration, and the affected population size. We allow preferences for policy attributes to vary systematically with the scenario design, with the source of risk and type of health threat, and with respondent characteristics. Using a willingness to pay (WTP) framework similar to that used for studies of individual risk, we find that omission of illness information leads to an upward bias in estimates of the value of avoided premature deaths and that individuals view avoided deaths and avoided illnesses as substitutes. We also find evidence of strongly diminishing marginal utility in policy scope. Differences in marginal WTP from different sources of risk or types of illness appear very small relative to differences associated with respondent characteristics and/or perceptions. Self-interest strongly dominates altruistic considerations.

Wage Risk and Employment Risk over the Life Cycle

We specify a structural life-cycle model of consumption, labour supply and job mobility in an economy with search frictions that allows us to distinguish between different sources of risk and to estimate their effects. The sources of risk are shocks to productivity, job destruction, the process of job arrival when employed and unemployed and match level heterogeneity. Our model allows for four main social insurance programmes. In contrast to simpler models that attribute all income fluctuations to shocks, our framework allows us to disentangle the effects of the shocks from the responses to these shocks. Estimates of productivity risk, once we control for employment risk and for individual labour supply choices, are substantially lower than estimates that attribute all wage variation to productivity risk. Increases in productivity risk impose a considerable welfare loss on individuals and induce substantial precautionary saving. Increases in employment risk have large effects on output and, primarily through this channel, affect welfare. The welfare value of government programs such as food stamps which partially insure productivity risk is greater than the value of unemployment insurance which provides (partial) insurance against employment risk and no insurance against persistent shocks.

Factorization of European and American Option Prices under Complete and Incomplete Markets

In a standard option-pricing model, with continuous-trading and diffusion processes, this paper shows that the price of one European - style option can be factorized into two intuitive components: One robust, X_0, which is priced by arbitrage, and a second, Pi _0, which depends on a risk orthogonal to the traded securities. This result implies the following: 1) In an incomplete market, these parts represent the price of a hedging portfolio, which is unique, and a premium, which depends only on the risk premiums associated with the residual risk, respectively. 2) In a complete market, it allows factoring the contribution of the different sources of risk to the final option price. For example, in a stochastic volatility model, we can quantify the impact on the option price of volatility risk relative to market risk, Pi _0 and X_0, respectively. Hence, certain misspricings in option markets can be directly related to the premium, Pi _0. 3) Moreover, these results extend to American securities, which have a third component -an additional early-exercise premium.

Factorization of European and American option prices under complete and incomplete markets

In a standard option-pricing model, with continuous-trading and diffusion processes, this paper shows that the price of one European-style option can be factorized into two intuitive components: One robust, X 0, which is priced by arbitrage, and a second, Π 0, which depends on a risk orthogonal to the traded securities. This result implies the following: (1) In an incomplete market, these parts represent the price of a hedging portfolio, which is unique, and a premium, which depends only on the risk premiums associated with the residual risk, respectively. (2) In a complete market, it allows factoring the contribution of the different sources of risk to the final option price. For example, in a stochastic volatility model, we can quantify the impact on the option price of volatility risk relative to market risk, Π 0 and X 0, respectively. Hence, certain misspricings in option markets can be directly related to the premium, Π 0. (3) Moreover, these results extend to American securities, which have a third component – an additional early-exercise premium.

Risk Factors and Levels of Risk for High School Dropouts

The study in this article identifies three major risk categories of high school dropouts and evaluates the impact of possible prevention strategies. As students accumulate these risks, they became more likely to drop out and prevention programs become less effective. Additionally, it was found that factors influencing the decision to drop out vary for different sources of risk, and thus there should be a range of prevention strategies offered to accommodate for this variance.

Risk Factors and Levels of Risk for High School Dropouts

The study in this article identifies three major risk categories of high school dropouts and evaluates the impact of possible prevention strategies. As students accumulate these risks, they became more likely to drop out and prevention programs become less effective. Additionally, it was found that factors influencing the decision to drop out vary for different sources of risk, and thus there should be a range of prevention strategies offered to accommodate for this variance.

Financial Globalization, International Business Cycles, and Consumption Risk Sharing

Consumption based measures of international risk sharing seem to defy the effects of more than two decades of ongoing financial globalization. We put forward an explanation of this puzzle: under incomplete risk sharing and if there are several sources of risk, consumption based measures of risk sharing will also be a function of the structure of business cycles, i.e. their degree of synchronization and persistence. We argue that permanent and transitory shocks to output constitute such qualitatively different sources of risk. Using OECD data, we then illustrate that countries have indeed become more insured against permanent shocks, in line with the ever better integration of financial markets. Basic measures of risk sharing have however not picked up this change because globalization has also affected the structure of business cycles. In particular, our results are consistent with the observation recently made by several authors that the globalization period has seen the emergence of less volatile and internationally more synchronized business cycles among industrialized countries.

Multi-dimensional risk and the cost of business cycles

This paper analyzes the welfare costs of business cycles when workers face uninsurable idiosyncratic labor income risk. In accordance with the previous literature, this paper decomposes labor income risk into an aggregate and an idiosyncratic component, but in contrast to the previous literature, this paper allows for multiple sources of idiosyncratic labor income risk. Using the multi-dimensional approach to idiosyncratic risk, this paper provides a general characterization of the welfare cost of business cycles when preferences and the (marginal) process of individual labor income in the economy with business cycles are given. The general analysis shows that the introduction of multiple sources of idiosyncratic risk never decreases the cost of business cycles, and strictly increases it if there are cyclical fluctuations across the different sources of risk. This paper also provides a quantitative analysis based on a version of the model that is calibrated to match US labor market data. The quantitative analysis suggests that realistic variations across two particular dimensions of idiosyncratic labor income risk increase the welfare cost of business cycles by a substantial amount.

Multiple predators in the pelagic: modelling behavioural cascades

Summary The behaviour of predators is rarely considered in models of predator–prey interactions, nor is it common to include multiple predators in models of animal behaviour. We introduce a model of optimal diel vertical migration in zooplankton prey facing predation from two functionally different predators, fish and other zooplankton. Zooplankton predators are themselves subject to predation from larger zooplankton, and all zooplankton face the classical trade‐off between increasing growth rate and predation risk from fish towards the surface. Prey are most vulnerable to zooplankton predators at small sizes, but become more visible to fish as they grow. However, by habitat selection prey continuously manage their exposure to different sources of risk. We analyse situations with cascading behavioural interactions of size‐structured predator–prey interactions in the pelagic. In particular, we explore how vertical gradients in growth rates and relative abundance of fish and zooplankton predators affect optimal distribution patterns, growth and mortality schedules. A major model prediction is that prey susceptibility to one functional predator type depends on the abundance of the other predator. Higher abundance of zooplankton predators leads to risk enhancement from fish, minor increases in predation rate from zooplankton and unchanged prey growth rates. Increasing abundance of fish does not alter the risk from zooplankton predators, but reduces growth and development rates. Such asymmetric emergent effects may be common when prey and predators share the same spatial refuge from a common top predator.

Common basis for health risk assessment and safety decision-making concerning exposure to ionising radiation and other sources of harm

To meet the growing practical need in risk analysis in Russia health risk assessment tools and regulations have been developed in the frame of few federal research programs. One of the objectives and directions of this development is to produce common, unified basis of health risk analysis for different sources of risk. A specific risk index ℜ has been proposed for safety decision-making (establishing safety standards and other levels of protective actions, comparison of various sources of risk, etc.). The index ℜ is defined as the partial mathematical expectation of lost years of healthy life (LLE) due to exposure during a year to a risk source considered. The more concrete determinations of this index for different risk sources derived from the common definition of ℜ are given. Generic safety standards (GSS) for the public and occupational workers have been suggested in terms of this index. Secondary specific safety standards have been derived from GSS for ionising radiation and a number of other risk sources including environmental chemical pollutants. Other general and derived levels for decision-making have also been proposed including the de-minimus level. Some examples of risk comparison are demonstrated in the frame of different comparison tasks.

Analysing Banking Sector Conditions: How to Use Macro-Prudential Indicators

This paper presents the methodological and statistical framework for macro-prudential analysis of the financial condition of the EU banking sector that has been adopted by the European System of Central Banks (ESCB). The framework is also a central component of broader financial stability assessments carried out by the ECB in co-operation with national authorities. The framework has three main building blocks, which draw on a large number of macro-prudential indicators. The first block is designed for assessing the financial condition of the banking sector. The second building block provides a framework for analysing potential sources of risk and vulnerability to which banks are exposed and an assessment of the importance of related exposures. The final part of the analysis deals with the resilience of banks vis-a-vis these different sources of risk and vulnerability. Analysing the impact of the identified risks on banks’ financial condition is the ultimate objective of the ESCB banking sector stability analysis.

Welfare Cost of Business Cycles when Markets are Incomplete

This paper analyzes the welfare costs of business cycles when workers face uninsurable idiosyncratic labor income risk. In accordance with the previous literature, this paper decomposes labor income risk into an aggregate and an idiosyncratic component, but in contrast to the previous literature, this paper allows for multiple sources of idiosyncratic labor income risk. Using the multi-dimensional approach to idiosyncratic risk, this paper provides a general characterization of the welfare cost of business cycles when preferences and the (marginal) process of individual labor income in the economy with business cycles are given. The general analysis shows that the introduction of multiple sources of idiosyncratic risk never decreases the welfare cost of business cycles, and strictly increases it if there are cyclical fluctuations across the different sources of risk. Finally, this paper also provides a quantitative analysis of multi-dimensional labor income risk based on a version of the model that is calibrated to match U.S. labor market data. The quantitative analysis suggests that realistic variations across two particular dimensions of idiosyncratic labor income risk increase the welfare cost of business cycles by a substantial amount.

A Simple Unified Model for Pricing Derivative Securities with
 Equity, Interest-Rate, and Default Risk

We develop a model for pricing derivative and hybrid securities whose value may depend on different sources of risk, namely, equity, interest-rate, and default risks. In addition to valuing such securities the framework is also useful for extracting probabilities of default (PD) functions from market data. Our model is not based on the stochastic process for the value of the firm [which is unobservable], but on the stochastic process for interest rates and the equity price, which are observable. The model comprises a risk-neutral setting in which the joint process of interest rates and equity are modeled together with the default conditions for security payoffs. The model is embedded on a recombining lattice which makes implementation of the pricing scheme feasible with polynomial complexity. We present a simple approach for calibration of the model to market observable data. The framework is shown to nest many familiar models as special cases. The model is extensible to handling correlated default risk and may be used to value distressed convertible bonds, debt-equity swaps, and credit portfolio products such as CDOs. We present several numerical and calibration examples to demonstrate the applicability and implementation of our approach.

Valuation and Return Dynamics of New Ventures

A dynamic model of a multistage investment project that captures many features of research and development (R&D) ventures and start-up companies is developed. An important feature these problems share is that firms learn about the potential profitability of the project throughout its life, but that technical uncertainty about the R&D effort is only resolved through additional investment. Consequently the risks associated with the ultimate cash flows have a systematic component even while the purely technical risks are idiosyncratic. Our model captures these different sources of risk and allows us to study their interaction in determining the value and risk premium of the venture. Copyright 2004, Oxford University Press.

A Simple Model for Pricing Derivative Securities with Equity, Interest-Rate, Default and Liquidity Risk

This paper develops a model for pricing securities that may be a function of several different sources of risk, namely, equity, interest-rate, default and liquidity risks. The model is also useful for extracting probabilities of default (PDs) in a model with equity, interest rate and credit risk. The model is not based on the stochastic process for the value of the firm, but on the stochastic process for interest rates and the equity price, which are observable. The model comprises two components. First, a risk-neutral setting in which the joint process of interest rates and equity are modelled together with the boundary conditions for security payoffs. Second, the model is embedded on a recombining lattice generated using an approximation technique. This makes implementation of the pricing scheme feasible with polynomial complexity. We present a simple approach to calibration of the model to market observable data. The model is extensible to handling correlated default risk and may be used to value distressed convertible bonds, debt-equity swaps, and credit portfolio products such as CDOs.

Risk Management for Hedge Fund Portfolios

This article applies formal risk management methodologies to optimization of a portfolio of hedge funds (fund of funds). We compare recently developed risk management methodologies: conditional value-at-risk and conditional drawdown-at-risk with more established mean-absolute deviation, maximum loss, and market neutrality approaches. The common property of considered risk management techniques is that they admit the formulation of a portfolio optimization model as a linear programming (LP) problem. LP formulations allow for implementing efficient and robust portfolio allocation algorithms, which can successfully handle optimization problems with thousands of instruments and scenarios. The performance of various risk constraints is investigated and discussed in detail for in-sample and out-of-sample testing of the algorithm. The numerical experiments show that imposing risk constraints may improve the “real” performance of a portfolio rebalancing strategy in out-of-sample runs. It is beneficial to combine several types of risk constraints that control different sources of risk.

Comparative Analysis of Linear Portfolio Rebalancing Strategies: An Application to Hedge Funds

This paper applies formal risk management methodologies to optimization of a portfolio of hedge funds (fund of funds). We compare recently developed risk management methodologies: Conditional Value-at-Risk and Conditional Drawdown-at- Risk with more established Mean-Absolute Deviation, Maximum Loss, and Market Neutrality approaches. The common property of considered risk management techniques is that they admit the formulation of a portfolio optimization model as a linear programming (LP) problem. LP formulations allow for implementing efficient and robust portfo lio allocation algorithms, which can successfully handle optimization problems with thousands of instruments and scenarios. The performance of various risk constraints is investigated and discussed in detail for in-sample and out-of-sample testing of the algorithm. The numerical experiments show that imposing risk constraints may improve the real performance of a portfolio rebalancing strategy in out -of-sample runs. It is beneficial to combine several types of risk constraints that control different sources of risk.

Risk Budgeting in Pension Investment

ABSTRACTThis paper extends the concept of investment efficiency from investment management structures to include strategic asset allocation and liability related issues. The concept of risk budgeting is developed. It represents a valuable way of incorporating risk and return information to produce more efficient investment decisions. Information ratio is a key measurement in the process, and it is concluded that the risk budget should be allocated based upon the marginal contribution to it for different sources of risk. Non-financial risk is also considered in terms of both governance and risk.

NORMALIZATION AND COMPARISON OF THE RISK TO HUMAN HEALTH FROM DIFFERENT SOURCES OF HARM

A special indicator is recommended for use in establishing universal safety norms for the public and for workers and other levels of decision making concerning protective measures as well as for comparing different sources of risk. It is defined as the reduced yearly harm – the years of lost healthy life as a result of the action of a source of risk for a given year. Universal safety norms in terms of this quantity are proposed. Derivative safety norms for ionizing radiation and certain other specific sources of risk, including chemical contaminants of the environment, are obtained based on them. Other universal and derivative levels for making decisions, including the level of negligible risk, are proposed. Recommendations are made for methods and indicators for comparing different sources of risk. Instructive examples of comparing different forms of risk are presented.