Risk Management Metrics Research Articles

Insurance Market Effects of Risk Management Metrics

We extend the classical analysis on optimal insurance design to the case when the insurer implements regulatory requirements (Value-at-Risk). Presumably, regulators impose some risk management requirement such as VaR to reduce the insurers’ insolvency risk, as well as to improve the insurance market stability. We show that VaR requirements may better protect the insured and improve economic efficiency, but have stringent negative effects on the insurance market. Our analysis reveals that the insured are better protected in the event of greater loss irrespective of the optimal design from either the insured or the insurer perspective. However, in the presence of the VaR requirement on the insurer, the insurer's insolvency risk might be increased and there are moral hazard issues in the insurance market because the optimal contract is discontinuous.

Application of quantitative microbial risk assessments for estimation of risk management metrics: Clostridium perfringens in ready-to-eat and partially cooked meat and poultry products as an example.

The U.S. Department of Agriculture, Food Safety and Inspection Service is exploring quantitative risk assessment methodologies to incorporate the use of the Codex Alimentarius' newly adopted risk management metrics (e.g., food safety objectives and performance objectives). It is suggested that use of these metrics would more closely tie the results of quantitative microbial risk assessments (QMRAs) to public health outcomes. By estimating the food safety objective (the maximum frequency and/or concentration of a hazard in a food at the time of consumption) and the performance objective (the maximum frequency and/or concentration of a hazard in a food at a specified step in the food chain before the time of consumption), risk managers will have a better understanding of the appropriate level of protection (ALOP) from microbial hazards for public health protection. We here demonstrate a general methodology that allows identification of an ALOP and evaluation of corresponding metrics at appropriate points in the food chain. It requires a two-dimensional probabilistic risk assessment, the example used being the Monte Carlo QMRA for Clostridium perfringens in ready-to eat and partially cooked meat and poultry products, with minor modifications to evaluate and abstract required measures. For demonstration purposes, the QMRA model was applied specifically to hot dogs produced and consumed in the United States. Evaluation of the cumulative uncertainty distribution for illness rate allows a specification of an ALOP that, with defined confidence, corresponds to current industry practices.

Quantitative Risk Assessment of Listeria monocytogenes in French Cold‐Smoked Salmon: II. Risk Characterization

A model for the assessment of exposure to Listeria monocytogenes from cold-smoked salmon consumption in France was presented in the first of this pair of articles (Pouillot et al., 2007, Risk Analysis, 27:683-700). In the present study, the exposure model output was combined with an internationally accepted hazard characterization model, adapted to the French situation, to assess the risk of invasive listeriosis from cold-smoked salmon consumption in France in a second-order Monte Carlo simulation framework. The annual number of cases of invasive listeriosis due to cold-smoked salmon consumption in France is estimated to be 307, with a very large credible interval ([10; 12,453]), reflecting data uncertainty. This uncertainty is mainly associated with the dose-response model. Despite the significant uncertainty associated with the predictions, this model provides a scientific base for risk managers and food business operators to manage the risk linked to cold-smoked salmon contaminated with L. monocytogenes. Under the modeling assumptions, risk would be efficiently reduced through a decrease in the prevalence of L. monocytogenes or better control of the last steps of the cold chain (shorter and/or colder storage during the consumer step), whereas reduction of the initial contamination levels of the contaminated products and improvement in the first steps of the cold chain do not seem to be promising strategies. An attempt to apply the recent risk-based concept of FSO (food safety objective) on this example underlines the ambiguity in practical implementation of the risk management metrics and the need for further elaboration on these concepts.

Extreme value theory—An application to the South African equity market

The assumption of normal returns remains ubiquitous in much of modern finance. In the pricing of conditional liabilities, for example, we frequently assume that logarithmic returns are normally distributed. Many risk management metrics, such as Value at Risk (VaR), and performance metrics such as Sharpe ratios also assume normally distributed movements.