A new approximation for the risk premium with large risks

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Richard Watt ◽  
Philip Gunby
Keyword(s):  
Numerical Simulations ◽  
Risk Premium ◽  
Design Methodology ◽  
Content Type ◽  
True Value ◽  
Risk Neutral ◽  
Risk Neutral Probabilities

PurposeThe Arrow–Pratt approximation to the risk premium is only valid for small risks. In this paper we consider a second approximation, based on risk-neutral probabilities and which requires no greater information than the Arrow–Pratt approximation, that works well for both small and large risks.Design/methodology/approachThe paper is theoretical in nature, although it also provides illustrative numerical simulations.FindingsThe new approximation proposed here appears to be significantly superior to Arrow–Pratt for approximating the true value of the risk premium when the risk is large. It may also approximate better even for relatively small risks.Originality/valueAs far as we are aware, there are no other known approximations for the risk premium when the risk involved is large.

Human sensitivity towards nature: Eastern and Western perspectives

2015 ◽  
Vol 12 (3) ◽  
pp. 172-182 ◽  
Author(s):  
Anne K. Randerson
Keyword(s):  
Comparative Literature ◽  
Design Methodology ◽  
Positive Influence ◽  
Human Beings ◽  
Basic Difference ◽  
Content Type ◽  
True Value ◽  
Human Situation ◽  
Conceptual Paper ◽  
The Universe

Purpose – The purpose of this paper is to focus on the religious and philosophical ways humans view nature, and how we perceive and treat our planet, including all its living entities. Its purpose is to make a positive influence on individuals living in the Eastern and Western hemispheres, so that those who are unaware may be given an unexpected glimpse at our current human situation, which appears increasingly discouraging with regard to sensitivity towards nature. Design/methodology/approach – By offering a subtle, insightful view of human nature and its connection to religion and the universe, rather than facts and statistics on pollution alone, this conceptual paper introduces theoretical and philosophical discussions from comparative literature as well as narratives from actual interviews conducted in Japan. Findings – As human beings, we need to better define our position in this world, in order to learn to appreciate the true value of our own existence. With regard to the question of where humans lie in nature, a basic difference exists between Asian and Western views. The Asian view of nature has traditionally regarded humans and the universe as continually interacting together – human beings are an integral part of life. This differs from the basic Western notion of humans and nature comprising two separate, opposing elements. Originality/value – This paper offers readers a deeper understanding of how humans feel and perceive nature, to help them realize how urgent it is for us to respect our natural resources on Earth.

scholarly journals Variance risk premia for agricultural commodities

2019 ◽  
Vol 79 (3) ◽  
pp. 286-303
Author(s):  
Wenwen Xi ◽  
Dermot Hayes ◽  
Sergio Horacio Lence
Keyword(s):  
Risk Premium ◽  
Price Volatility ◽  
Risk Premia ◽  
Content Type ◽  
Risk Premiums ◽  
Variance Risk Premium ◽  
Revenue Insurance ◽  
Risk Neutral ◽  
Variance Risk ◽  
Practical Implications

Purpose The purpose of this paper is to study the variance risk premium in corn and soybean markets, where the variance risk premium is defined as the difference between the historical realized variance and the corresponding risk-neutral expected variance. Design/methodology/approach The authors compute variance risk premiums using historical derivatives data. The authors use regression analysis and time series econometrics methods, including EGARCH and the Kalman filter, to analyze variance risk premiums. Findings There are moderate commonalities in variance within the agricultural sector, but fairly weak commonalities between the agricultural and the equity sectors. Corn and soybean variance risk premia in dollar terms are time-varying and correlated with the risk-neutral expected variance. In contrast, agricultural commodity variance risk premia in log return terms are more likely to be constant and less correlated with the log risk-neutral expected variance. Variance and price (return) risk premia in agricultural markets are weakly correlated, and the correlation depends on the sign of the returns in the underlying commodity. Practical implications Commodity variance (i.e. volatility) risk cannot be hedged using futures markets. The results have practical implications for US crop insurance programs because the implied volatilities from the relevant options markets are used to estimate the price volatility factors used to generate premia for revenue insurance products such as “Revenue Protection” and “Revenue Protection with Harvest Price Exclusion.” The variance risk premia found implies that revenue insurance premia are overpriced. Originality/value The empirical results suggest that the implied volatilities in corn and soybean futures market overestimate true expected volatility by approximately 15 percent. This has implications for derivative products, such as revenue insurance, that use these implied volatilities to calculate fair premia.

Political uncertainty and the US market risk premium

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Richard P. Gregory
Keyword(s):  
Risk Premium ◽  
Design Methodology ◽  
Market Risk ◽  
The Other ◽  
Political Uncertainty ◽  
Delayed Effect ◽  
Content Type ◽  
Market Risk Premium ◽  
The Us ◽  
Negative Effect

PurposeThe purpose of this study is to examine the bi-directional causality between political uncertainty and the market risk premium in the US.Design/methodology/approachI use a theoretical model to motivate signs and then check signs based on a vector autoregression.FindingsI find that political uncertainty has a small positive, delayed effect on the market risk premium. The market risk premium, on the other hand, has a large permanent, negative effect on political uncertainty.Originality/valueThis is the first research paper to consider the bi-directional effects of political uncertainty on the market risk premium and vice versa. It also finds interesting empirical results.

scholarly journals Reflections on the applicability of business analytics for management accounting – and future perspectives for the accountant

2018 ◽  
Vol 14 (2) ◽  
pp. 167-187 ◽  
Author(s):  
Steen Nielsen
Keyword(s):  
Design Methodology ◽  
Management Accounting ◽  
Hard Core ◽  
Business Analytics ◽  
Future Perspectives ◽  
Content Type ◽  
Management Accountant ◽  
Core Skills ◽  
True Value ◽  
Real Value

Purpose This paper aims to identify, discuss and provide suggestions for how the phenomenon of business analytics and its elements may influence management accounting and the accountant. Design/methodology/approach This paper not only identifies a number of studies from academic journals but also reports from professional consultancies and professional accounting bodies concerning future opportunities and implications for management accounting in combination with business analytics. Findings First, it was found that both academic articles and professional accounting bodies suggest changes for management accounting. Second, it shows that topics such holistic views, fact-based decisions, predictions, visualization and specific hard core skills are the most important for the accountant. Finally, the paper demonstrates that there are different ambition levels for the management accountant, depending on if s(he) wants to be on a descriptive, on a predictive or on a prescriptive level. Originality/value Even though the paper is general in nature, the paper discusses a phenomenon that for some reason has been ignored by practitioners and researchers. The true value of the paper therefore lies in making practitioners and researchers more aware of the possibilities of business analytics for management accounting, and through that, making the management accountant a real value driver for the company.

Asset pricing when trading is for entertainment

2019 ◽  
Vol 11 (2) ◽  
pp. 220-264
Author(s):  
Jiang Luo ◽  
Avanidhar Subrahmanyam
Keyword(s):  
Financial Markets ◽  
Risk Premium ◽  
Design Methodology ◽  
Asset Returns ◽  
Endowment Effect ◽  
Content Type ◽  
Negative Relation ◽  
Dynamic Setting ◽  
Market Portfolio ◽  
Risk Pricing

Purpose High levels of turnover in financial markets are consistent with the notion that trading, like gambling, yields direct utility to some agents. The purpose of this paper is to show that the presence of these agents attenuates covariance risk pricing and volatility, and implies a negative relation between volume and future returns. Since psychological literature indicates that the desirability of a gamble arises from the ex ante volatility of the outcome, the authors propose that agents derive greater utility from trading more volatile stocks. These stocks earn lower average returns in equilibrium, although the risk premium on the market portfolio is positive. The authors then consider a dynamic setting where agents’ utility from trading increases when they make positive profits in earlier rounds (e.g. due to an endowment effect). This leads to “bubbles,” i.e. disproportionate jumps in asset returns as a function of past prices, higher volume in up markets relative to down markets, as well as a leverage effect, wherein down markets are followed by higher volatility than up markets. Design/methodology/approach Analytical. Findings The presence of gamblers attenuates covariance risk pricing and volatility, and implies a negative relation between volume and future returns. If gamblers prefer more volatile stocks, these stocks earn lower average returns in equilibrium. If agents’ utility from trading increases when they make positive profits in earlier rounds (e.g. to an endowment effect), this leads to higher volume and lower volatility in up markets relative to down markets. Originality/value No paper has previously modeled agents who derive direct utility from trading.

AI: the HR revolution

2019 ◽  
Vol 18 (2) ◽  
pp. 52-55
Author(s):  
Fred Gulliford ◽  
Amy Parker Dixon
Keyword(s):  
Human Resources ◽  
Financial Services ◽  
Design Methodology ◽  
Implementation Strategies ◽  
Decision Makers ◽  
Content Type ◽  
True Value ◽  
Initial Implementation ◽  
Single Industry ◽  
And Robotics

Purpose Artificial intelligence (AI) and robotics are already here, influencing almost every single industry in one way or another. Organisational scientists at Qlearsite use AI and machine learning to unleash the business potential languishing in workforce data – something previously unusable because of its format. This paper aims to track the initial implementation of AI up to present day, based on Qlearsite’s corporate experience. Design/methodology/approach Using actual experiences, Qlearsite were tasked with demonstrating how businesses can better understand their workforce, identify performance hurdles and develop strategies to clear them, ultimately improving productivity. Findings While initial implementation strategies may have faced challenges by senior human resources (HR) members across industries, the multiple benefits are evident and measurable against corporate success and productivity levels today. Originality/value Where HR leaders and senior decision-makers struggle to solve ongoing issues, such as absenteeism, an acute problem for the financial services industry. This paper demonstrates the true value of AI, with complex issues solved by data analysis – a monumental and expensive task for any employee to carry out.

scholarly journals Response of personal exposimeters for exposure assessment in the GSM900 downlink band

2015 ◽  
Vol 34 (4) ◽  
pp. 1076-1084 ◽  
Author(s):  
Arno Thielens ◽  
Sam Agneessens ◽  
Günter Vermeeren ◽  
Leen Verloock ◽  
Hendrik Rogier ◽  
...  
Keyword(s):  
Confidence Interval ◽  
Numerical Simulations ◽  
Electric Fields ◽  
Mobile Communications ◽  
Design Methodology ◽  
Human Subjects ◽  
Far Field ◽  
Percent Confidence Interval ◽  
Global System ◽  
Content Type

Purpose – The purpose of this paper is to numerically determine the distribution of electric fields registered by a personal exposimeter (PEM) used for the Global System for Mobile Communications (GSM) around 900 MHz (GSM900) downlink (DL) band and compare these with calibration measurements of PEMs worn by real human subjects. Design/methodology/approach – Numerical simulations using the Virtual Family Male (VFM) are carried out at 950 MHz in order to determine the electric fields surrounding the phantom in realistic, far-field environments. These electric fields can be used to determine the distribution of a PEM’s response when worn by the VFM. Simultaneously, calibration measurements in an anechoic chamber are carried out using a real PEM worn by two different subjects, in order to determine the PEM’s response experimentally. Findings – Both the numerical simulations and the measurements show that a PEM will on average underestimate the incident electric fields in the GSM900 DL band and that the variation (expressed in terms of the 95 percent confidence interval and the interquartile distance) on its response is relatively large: a 95 percent confidence interval of 22 dB and an interquartile distance of 7.3 dB are found in a realistic environment using numerical simulations, while the calibration measurements show interquartile distances up to 12 dB. In terms of variation there is an excellent agreement between simulations and measurements. Originality/value – This paper proves that numerical simulations may be used as a replacement for the more time- and work-consuming calibration measurements if the variation of a PEM’s response is studied.

scholarly journals KPMG’s True Value methodology

2016 ◽  
Vol 7 (4) ◽  
pp. 517-530 ◽  
Author(s):  
Andrea B. Coulson
Keyword(s):  
Design Methodology ◽  
Application Process ◽  
Content Type ◽  
Future Earnings ◽  
The Public ◽  
Financial Valuation ◽  
True Value ◽  
Economic Reality ◽  
Practical Implications ◽  
Social And Environmental Impacts

Purpose The purpose of this paper is to constructively critique KPMG’s “True Value methodology” which seeks to quantify in financial terms the value companies create or reduce for society. Design/methodology/approach This paper is based on a review of documents produced by KPMG detailing its methodology and corporate reports in the public domain of the True Value methodology applied in practice. The critique is divided into two sections. The first section reviews KPMGs methodological view of a bounded economic reality and offers potential starting points and limitations for a conceptual framing of the “methodology”. Practical insights on applying the methodology are offered in the second section. Findings The True Value methodology helps its producers understand the potential risk to future earnings posed by current externalities being internalised. KPMG’s socio-economic framing of future scenarios and financial valuation of environmental and social impacts is limited to a standardised commercial viewpoint. Potential opportunities exist for producers to involve stakeholders in the application of the methodology to form a more inclusive and pluralist conception of risk and values for social and environmental impacts. Practical implications This paper offers timely insights for companies using and considering the use of the “True Value” methodology and stakeholders considering their engagement in the application process and/or use of its findings. Originality/value The study is a constructive critique of this contemporary, financial practice of accounting for externalities developed by KMPG.

Effects of platform quality requirement on sellers

Kybernetes ◽  
2017 ◽  
Vol 46 (7) ◽  
pp. 1204-1222
Author(s):  
Huijun Hou ◽  
Xiaoying Cheng
Keyword(s):  
Product Quality ◽  
Design Methodology ◽  
Optimal Decision ◽  
Quality Level ◽  
Risk Averse ◽  
Quality Requirement ◽  
Minimum Level ◽  
Content Type ◽  
Service Charge ◽  
Risk Neutral

Purpose The purpose of this paper is to study the effects of the requirement on product quality and refund (return service charge). Design/methodology/approach The authors set a minimum product quality level for platform to study the effects of the minimum product quality level on product quality and refund for risk-neutral sellers and risk-averse sellers, respectively. Findings For the risk-neutral sellers whose optimal product quality level is lower than the minimum level will improve the product quality to the minimum required level. However, under a certain condition with the requirement the sellers will increase refund. Similar results are found when uncertainty is incorporated into demand and return quantity. In addition, how the sellers’ optimal refund is affected by market parameters and market volatile factors is discussed. Specially, the correlation between the uncertainty of the demand and the return quantity affects sellers’ optimal decision of return service charge in many ways. Originality/value The obtained results can provide operational managers in reality with valuable suggestions in quality management for platform.

An optimal target cost contract with a risk neutral owner

2014 ◽  
Vol 21 (5) ◽  
pp. 586-604 ◽  
Author(s):  
S. Mahdi Hosseinian ◽  
David G. Carmichael
Keyword(s):  
Design Methodology ◽  
Maximization Problem ◽  
Risk Averse ◽  
Content Type ◽  
Cost Uncertainty ◽  
Target Cost ◽  
Risk Neutral ◽  
Optimal Target ◽  
The Cost ◽  
Practical Implications

Purpose – Target cost contracts are commonly used to share the monetary outcome of work or a project. However, discussion is ongoing, as to what constitutes optimal sharing. The purpose of this paper is to examine optimal sharing and derives a result for defined risk assumptions on the owner (risk neutral) and contractor (risk-averse ranging to risk neutral). Design/methodology/approach – The derivation is based on solving a constrained maximization problem using ideas from principal-agent theory. Practitioners were engaged in a designed exercise in order to validate the approach and propositions. The influence of the contractor's level of risk aversion, the cost uncertainty and the contractor's effort effectiveness are examined. Findings – The paper shows that, at the optimum, the sharing ratio between contractor and owner needs to reduce and the fixed fee needs to increase when the contractor becomes more risk-averse, the level of the cost uncertainty increases, or the effectiveness of the contractor effort decreases. Practical implications – The paper's findings provide practitioners with a useful benchmark for outcome sharing in target contracts. Originality/value – Existing work on outcome sharing in target contracts is limited to being qualitative and anecdotal in nature. This paper extends existing knowledge by providing a quantitative treatment of optimal sharing.

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