scholarly journals On behavioral Arrow Pratt risk process with applications to risk pricing, stochastic cash flows, and risk control

2021 ◽  
Author(s):  
Godfrey Cadogan
Keyword(s):  
Interest Rates ◽  
Risk Measure ◽  
Cash Flows ◽  
Risk Process ◽  
Factor Price ◽  
Time Varying ◽  
Arch Model ◽  
Increased Risk ◽  
Highly Nonlinear ◽  
System Solution

We introduce a closed form behavioural stochastic Arrow-Pratt risk process, decomposed into discrete asymmetric risk seeking and risk averse components that run on different local times in ϵ-disks centered at risk free states. Additionally, we embed Arrow-Pratt (“AP”) risk measure in a simple dynamic system of discounted cash flows with constant volatility, and time varying drift. Signal extraction of Arrow-Pratt risk measure shows that it is highly nonlinear in constant volatility for cash flows. Robust identifying restrictions on the system solution confirm that even for small time periods constant volatility is not a measure of AP risk. By contrast, time-varying volatility measures aspects of embedded AP risk. Whereupon maximal AP risk measure is obtained from a convolution of input volatility and idiosyncratic shocks to the system. We provide four applications for our theory. First, we find that Engle, Ng and Rothschild (1990) Factor-ARCH model for risk premia is misspecified because the factor price of risk is time varying and unstable. Our theory predicts that a hyper-ARCH correction factor is required to remove the Factor-ARCH specification. Second, when applied to analysts beliefs about interest rates and volatility, we find that AP risk measure is a feedback control over stochastic cash flows. Whereupon increased risk aversion to negative shocks to earnings increases volatility. Third, we use an oft cited example of Benes, Shepp and Witsenhausen (1980) to characterize a controlled AP diffusion for a conservative investor who wants to minimize the AP risk process for an asset. Fourth, we recover stochastic differential utility functional from the AP risk process and show how it is functionally equivalent to Duffie and Epstein’s (1992) parametrization.

Adaptive control of time-varying non-linear plants by speed-gradient algorithms

2019 ◽  
pp. 37-44 ◽  
Author(s):  
O. P. Tomchina ◽  
D. N. Polyakhov ◽  
O. I. Tokareva ◽  
A. L. Fradkov
Keyword(s):  
Adaptive Control ◽  
Adaptive Systems ◽  
Reference Model ◽  
Maximum Deviation ◽  
Model Parameters ◽  
Time Varying ◽  
System Solution ◽  
Non Linear ◽  
Initial Uncertainty ◽  
Speed Gradient

Introduction: The motion of many real world systems is described by essentially non-linear and non-stationary models. A number of approaches to the control of such plants are based on constructing an internal model of non-stationarity. However, the non-stationarity model parameters can vary widely, leading to more errors. It is only assumed in this paper that the change rate of the object parameters is limited, while the initial uncertainty can be quite large.Purpose: Analysis of adaptive control algorithms for non-linear and time-varying systems with an explicit reference model, synthesized by the speed gradient method.Results: An estimate was obtained for the maximum deviation of a closed-loop system solution from the reference model solution. It is shown that with sufficiently slow changes in the parameters and a small initial uncertainty, the limit error in the system can be made arbitrarily small. Systems designed by the direct approach and systems based on the identification approach are both considered. The procedures for the synthesis of an adaptive regulator and analysis of the synthesized system are illustrated by an example.Practical relevance: The obtained results allow us to build and analyze a broad class of adaptive systems with reference models under non-stationary conditions.

Getting More from Less in Defined Benefit Plans

2018 ◽  
Author(s):  
Daniel W. Wallick ◽  
Daniel B. Berkowitz ◽  
Andrew S. Clarke ◽  
Kevin J. DiCiurcio ◽  
Kimberly A. Stockton
Keyword(s):  
Interest Rates ◽  
Pension Plan ◽  
Defined Benefit ◽  
Portfolio Risk ◽  
Defined Benefit Pension Plan ◽  
Increased Risk ◽  
Investment Returns ◽  
Defined Benefit Plans ◽  
Asset Class ◽  
Reduced Costs

As global interest rates hover near historic lows, defined benefit pension plan sponsors must grapple with the prospect of lower investment returns. We examine three levers that can enhance portfolio outcomes in a low-return world: increased contributions; reduced investment costs; and increased portfolio risk. We use portfolio simulations based on a stochastic asset class forecasting model to evaluate each lever according to two criteria: the magnitude of impact and the certainty that this impact will be realized. We show that increased contributions have the greatest and most certain impact. Reduced costs have a more modest, but equally certain impact. Increased risk can deliver a significant impact, but with the least certainty.

Abstract P253: Proton Pump Inhibitor Use is Positively Associated with Incidence of Cardiovascular Disease

Circulation ◽  
2017 ◽  
Vol 135 (suppl_1) ◽  
Author(s):  
Elizabeth J Bell ◽  
Jennifer L St. Sauver ◽  
Veronique L Roger ◽  
Nicholas B Larson ◽  
Hongfang Liu ◽  
...  
Keyword(s):  
Heart Failure ◽  
Cardiovascular Disease ◽  
Coronary Heart Disease ◽  
Heart Disease ◽  
Language Processing ◽  
Proton Pump ◽  
Hazard Ratio ◽  
Time Varying ◽  
Increased Risk ◽  
The Impact

Introduction: Proton pump inhibitors (PPIs) are used by an estimated 29 million Americans. PPIs increase the levels of asymmetrical dimethylarginine, a known risk factor for cardiovascular disease (CVD). Data from a select population of patients with CVD suggest that PPI use is associated with an increased risk of stroke, heart failure, and coronary heart disease. The impact of PPI use on incident CVD is largely unknown in the general population. Hypothesis: We hypothesized that PPI users have a higher risk of incident total CVD, coronary heart disease, stroke, and heart failure compared to nonusers. To demonstrate specificity of association, we additionally hypothesized that there is not an association between use of H 2 -blockers - another commonly used class of medications with similar indications as PPIs - and CVD. Methods: We used the Rochester Epidemiology Project’s medical records-linkage system to identify all residents of Olmsted County, MN on our baseline date of January 1, 2004 (N=140217). We excluded persons who did not grant permission for their records to be used for research, were <18 years old, had a history of CVD, had missing data for any variable included in our model, or had evidence of PPI use within the previous year.We followed our final cohort (N=58175) for up to 12 years. The administrative censoring date for CVD was 1/20/2014, for coronary heart disease was 8/3/2016, for stroke was 9/9/2016, and for heart failure was 1/20/2014. Time-varying PPI ever-use was ascertained using 1) natural language processing to capture unstructured text from the electronic health record, and 2) outpatient prescriptions. An incident CVD event was defined as the first occurrence of 1) validated heart failure, 2) validated coronary heart disease, or 3) stroke, defined using diagnostic codes only. As a secondary analysis, we calculated the association between time-varying H 2 -blocker ever-use and CVD among persons not using H 2 -blockers at baseline. Results: After adjustment for age, sex, race, education, hypertension, hyperlipidemia, diabetes, and body-mass-index, PPI use was associated with an approximately 50% higher risk of CVD (hazard ratio [95% CI]: 1.51 [1.37-1.67]; 2187 CVD events), stroke (hazard ratio [95% CI]: 1.49 [1.35-1.65]; 1928 stroke events), and heart failure (hazard ratio [95% CI]: 1.56 [1.23-1.97]; 353 heart failure events) compared to nonusers. Users of PPIs had a 35% greater risk of coronary heart disease than nonusers (95% CI: 1.13-1.61; 626 coronary heart disease events). Use of H 2 -blockers was also associated with a higher risk of CVD (adjusted hazard ratio [95% CI]: 1.23 [1.08-1.41]; 2331 CVD events). Conclusions: PPI use is associated with a higher risk of CVD, coronary heart disease, stroke and heart failure. Use of a drug with no known cardiac toxicity - H 2 -blockers - was also associated with a greater risk of CVD, warranting further study.

Optimal investment with time-varying transition probabilities for regime switching

2021 ◽  
Vol 29 (2) ◽  
pp. 102-115
Author(s):  
Hyo-Chan Lee ◽  
Seyoung Park ◽  
Jong Mun Yoon
Keyword(s):  
Regime Switching ◽  
Transition Probabilities ◽  
Optimal Investment ◽  
Cash Flows ◽  
Optimal Timing ◽  
Time Varying ◽  
Content Type ◽  
Stochastic Nature ◽  
Optimal Thresholds

Abstract This study aims to generalize the following result of McDonald and Siegel (1986) on optimal investment: it is optimal for an investor to invest when project cash flows exceed a certain threshold. This study presents other results that refine or extend this one by integrating timing flexibility and changes in cash flows with time-varying transition probabilities for regime switching. This study emphasizes that optimal thresholds are either overvalued or undervalued in the absence of time-varying transition probabilities. Accordingly, the stochastic nature of transition probabilities has important implications to the search for optimal timing of investment.

Globalization of Financial Risks and Evaluation of Common Stocks

2014 ◽  
pp. 231-240
Author(s):  
Dilaysu Cinar
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Global Economy ◽  
Cash Flows ◽  
Financial Risks ◽  
Treasury Bills ◽  
Government Bonds ◽  
Common Stocks ◽  
Management Policies ◽  
Globalization Strategy

Risk can be defined as uncertainty about the events that will occur in the future. Risks are encountered in all areas of life, and become more important when it comes to financial markets. Risk in financial markets is defined as investment securities. If the investment vehicle is government bonds or treasury bills, they are considered to be free of risk. Because of the sudden changes in exchange rates in the process of globalization or fluctuations in interest rates influencing the cash flows of companies, most companies consider hedging as a viable part of the globalization strategy. Risk management policies to ease problems and disasters, which may arise from the use of instruments. The stock market serves as a bridge between economic activity and finance under favor of functions such as reducing the risk of investment, and it meets the capital needs for companies. For this reason, the development of stock markets plays an important role for the global economy and finance. Thus, the aim of this chapter is to introduce financial risks and their effect on common stocks.

Debt Investment Strategies

2019 ◽  
pp. 661-678
Author(s):  
Steven Cosares ◽  
Taylor Riggs ◽  
Andrew C. Spieler
Keyword(s):  
Interest Rates ◽  
Portfolio Management ◽  
Federal Reserve ◽  
Financial Planning ◽  
Cash Flows ◽  
Future Market ◽  
Investment Strategies ◽  
Investment Opportunities ◽  
Investment Returns ◽  
Debt Market

The diverse investment opportunities available in the debt market enable both individual and institutional investors to develop effective passive and active strategies for financial planning and portfolio management. Such strategies suggest a set of purchases, redemptions, and liquidations to meet investor objectives that consider such factors as market risk, expected investment returns, cash flows, liquidity, and investor convenience. Investment strategies can inoculate the portfolio against potential adverse markets events such as wide fluctuations in interest rates or can be executed in anticipation of an event affecting future market conditions such as an announcement by the Federal Reserve or the default of a municipality. This chapter presents different scenarios in which an investor would employ some appropriate strategies involving bonds or other debt-based securities.

scholarly journals Social Security Benefit Valuation, Risk, and Optimal Retirement

Risks ◽  
2019 ◽  
Vol 7 (4) ◽  
pp. 124
Author(s):  
Yassmin Ali ◽  
Ming Fang ◽  
Pablo A. Arrutia Sota ◽  
Stephen Taylor ◽  
Xun Wang
Keyword(s):  
Social Security ◽  
Interest Rates ◽  
Term Structure ◽  
Principal Component ◽  
Disease Diagnosis ◽  
Cash Flows ◽  
Future Research ◽  
Demographic Groups ◽  
Numerical Studies ◽  
Future Research Directions

We develop valuation and risk techniques for the future benefits of a retiree who participates in the American Social Security program based on their chosen date of retirement, the term structure of interest rates, and forecasted life expectancy. These valuation methods are then used to determine the optimal retirement time of a beneficiary given a specific wage history and health profile in the sense of maximizing the present value of cash flows received during retirement years. We then examine how a number of risk factors including interest rates, disease diagnosis, and mortality risks impact benefit value. Specifically, we utilize principal component analysis in order to assess both interest rate and mortality risk. We then conduct numerical studies to examine how such risks range over distinct income and demographic groups and finally summarize future research directions.

Increased risk of cancer in patients with retinal vein occlusion: a 12-year nationwide cohort study

2020 ◽  
pp. bjophthalmol-2020-316947
Author(s):  
Min Seok Kim ◽  
Joon Hee Cho ◽  
Seong Jun Byun ◽  
Chang-Mo Oh ◽  
Kyu Hyung Park ◽  
...  
Keyword(s):  
Retinal Vein Occlusion ◽  
Cox Regression ◽  
Subsequent Development ◽  
Population Based ◽  
Control Group ◽  
Time Varying ◽  
Vein Occlusion ◽  
Increased Risk ◽  
Risk Of Cancer ◽  
Subsequent Cancer

AimsTo investigate the association between incident retinal vein occlusion (RVO) and the subsequent development of cancer.MethodsIn this nationwide population-based retrospective study using 2002–2013 National Health Insurance Service database which covers the entire South Korean population, 186 701 incident RVO patients and their 1:1 propensity-score matched controls were included. We defined the fixed cohort from January 1st, 2004 to December 31st, 2013; the cohort included patients who suffered incident RVO after entering the cohort and their matched controls, and excluded patients having any cancer history before entering the cohort. The association of RVO and cancer was assessed by time-varying covariate Cox regression models; Model 1 included RVO as a time-varying covariate, Model 2 included Model 1 plus demographic information and Model 3 included Model 2 and comorbidities.ResultsRVO was associated with an increased risk of subsequent cancer (HR=1.29; 95% CI, 1.26–1.31 in Model 1), which was consistent in Models 2 and 3. The incidence rate of overall cancer during the study period was 25.55 (95% CI, 25.19–25.91) per 1000 person-years in the RVO group and 18.62 (95% CI, 18.46–18.79) per 1000 person-years in the control group. In the subgroup analysis, haematological malignancies showed the highest association with RVO (HR=1.65; 95% CI, 1.49–1.83).ConclusionPatients with RVO have an increased risk of subsequent cancer development even after adjusting for demographic factors and comorbidities. Further study is warranted to elucidate these associations to provide proper recommendations for RVO patients regarding the cancer screening.

Containing Financial Contagion at the Source

2009 ◽  
pp. 231-263
Author(s):  
Amy Wenxuan Ding
Keyword(s):  
Interest Rates ◽  
Financial Market ◽  
The United States ◽  
Financial Contagion ◽  
Credit Crisis ◽  
Wall Street ◽  
Increased Risk ◽  
Credit History ◽  
False Sense ◽  
Credit Scores

The world financial market is currently in turmoil because of the recent housing and credit crisis. From January to November 2007, more than 1 million homes in the United States entered foreclosure. Not only are homeowners losing their homes, but paying renters are being evicted as lenders reclaim properties. Depending on the state, 48–69% of foreclosed loans come from the subprime market. Subprime refers not to interest rates but to borrower quality, determined by low credit scores, little credit history, or unstable income with limited assets. Because of the increased risk associated with loaning to them, those borrowers cannot get favorable rates and often take out loans with short-term introductory rates. These loans generally get packaged by Wall Street into residential-backed securities and structured into slices or tranches that can be priced and rated from AAA to BBB– on the basis of the credit risk inherent in each tranche. When these mortgages adjust to market rates, the borrower no longer qualifies for the existing loan and can no longer pay it back. Because techniques such as gifted down payments and no requirements to prove income were the only way to move these borrowers into mortgages, many were lured into a false sense of prosperity for which they were neither prepared nor equipped and for which they are now suffering through foreclosure.

scholarly journals Linkage Analysis among China’s Seven Emissions Trading Scheme Pilots

2018 ◽  
Vol 10 (10) ◽  
pp. 3389 ◽  
Author(s):  
Xuedi Li ◽  
Jie Ma ◽  
Zhu Chen ◽  
Haitao Zheng
Keyword(s):  
Emissions Trading ◽  
Vector Autoregression ◽  
Correlation Coefficients ◽  
Skewed Distribution ◽  
Time Varying ◽  
Arch Model ◽  
Conditional Correlation ◽  
Arch Effect ◽  
Emissions Trading Scheme ◽  
Trading Scheme

This paper focuses on the time-varying correlation among China’s seven emissions trading scheme markets. Correlation analysis shows a weak connection among these markets for the whole sample period, which spans from 9 June 2014 to 30 June 2017. The return rate series of the seven markets show the characteristics of a fat-tailed and skewed distribution, and the Vector Autoregression (VAR) residuals present a significant Autoregressive Conditional Heteroscedasticity (ARCH) effect. Therefore, we adopt Vector Autoregression Generalized ARCH model with Dynamic Conditional Correlation (VAR-DCC-GARCH) to capture the time-varying correlation coefficients. The results of the VAR-DCC-GARCH show that the conditional correlation coefficients fluctuate fiercely over time. At some points, the different markets present a significant correlation with the value of the even peaks of the coefficient at 0.8, which indicates that these markets are closely connected. However, the connection between each market does not last long. According to the actual situation of China’s regional carbon emission markets, policy factors may explain most of the temporary, significant co-movement among markets.

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