New Economics Papers
on Risk Management
Issue of 2008‒11‒18
seven papers chosen by

  1. Catastrophe risk pricing : an empirical analysis By Lane, Morton; Mahul, Olivier
  2. Do collateral theories work in social banking ? By Leonardo Becchetti; Melody Garcia
  3. Estimating Farm Level Multivariate Yield Distribution Using Nonparametric Methods By Zheng, Qiujie; Wang, H. Holly; Shi, Qinghua
  4. The typology of partial credit guarantee funds around the world By Beck, Thorsten; Klapper, Leora F.; Mendoza, Juan Carlos
  5. Does Weather Matter? By Jian Hu
  6. Decreasing negative the delivery risk influence on the recepient's firm value: Portfolio approach By Michalski, Grzegorz
  7. Application of Copulas to Estimation of Joint Crop Yield Distributions By Vedenov, Dmitry

  1. By: Lane, Morton; Mahul, Olivier
    Abstract: The price of catastrophe risks is viewed by many to be too high and/or too volatile. Catastrophe risk practitioners point out that, contrary to standard insurance, such as automobile insurance, catastrophe re-insurance is exposed to infrequent but potentially very large losses. It thus requires keeping a large amount of capital in hand, generating a cost of capital to be added to the long-term expected loss. This paper pulls together data from about 250 catastrophe bonds issued on the capital markets to investigate how catastrophe risks are priced. The analysis reveals that catastrophe risk prices are a function of the underlying peril, the expected loss, the wider capital market cycle, and the risk profile of the transaction. The market-based catastrophe risk price is estimated to be 2.69 times the expected loss over the long term, that is, the long-term average multiple is 2.69. When adjusted from the market cycle, the multiple is estimated at 2.33. Peak perils like US Wind are shown to have a much higher multiple than that of non-peak perils like Japan Wind, revealing the diversification of credit from the market.
    Keywords: Markets and Market Access,Insurance&Risk Mitigation,Debt Markets,Access to Markets,Emerging Markets
    Date: 2008–11–01
  2. By: Leonardo Becchetti (Faculty of Economics, University of Rome "Tor Vergata"); Melody Garcia (Faculty of Economics, University of Rome "Tor Vergata")
    Abstract: We study the determinants of collateralisation on the universe of credit files of non individual borrowers in a “Grameen’s type” Bank (Banca Popolare Etica) which aims to reconcile economic sustainability with the pursuit of social goals. The extremely high share of uncollateralized loans (around 42 percent) appears consistent with a multistakeholder (customer oriented) approach which internalises the welfare costs of default of collateralised borrowers. Econometric findings document that collateralisation depends positively on ex ante borrower’s risk (proxyed by non performing past track record) and, negatively, on relationship lending. The incentive effect seems to work since collateralised borrowers are ex ante, but not ex post, riskier.
    Keywords: collateral, bank-firm relationship, credit risk.
    JEL: G21
    Date: 2008–11–07
  3. By: Zheng, Qiujie; Wang, H. Holly; Shi, Qinghua
    Abstract: Modeling crop yield distributions has been an important topic in agricultural production and risk analysis, and nonparametric methods have gained attention for their flexibility in describing the shapes of yield density functions. In this article, we apply a nonparametric method to model joint yield distributions based on farm-level data for multiple crops, and also provide a way of simulation for univariate and bivariate distributions. The results show that the nonparametric models, both univariate and bivariate, are estimated quite well compared to the original samples, and the simulated empirical distributions also preserve the attributes of the original samples at a reasonable level. This article provides a feasible way of using multivariate nonparametric methods in further risk and insurance analysis.
    Keywords: yield distribution, multi-variate nonparametric, China, farm-level, risks, Farm Management, Risk and Uncertainty,
    Date: 2008
  4. By: Beck, Thorsten; Klapper, Leora F.; Mendoza, Juan Carlos
    Abstract: This paper presents data on 76 partial credit guarantee schemes across 46 developed and developing countries. Based on theory, the authors discuss different organizational features of credit guarantee schemes and their variation across countries. They focus on the respective role of government and the private sector and different pricing and risk reduction tools and how they are correlated across countries. The findings show that government has an important role to play in funding and management, but less so in risk assessment and recovery. There is a surprisingly low use of risk-based pricing and limited use of risk management mechanisms.
    Date: 2008–11–01
  5. By: Jian Hu (Southern Methodist University)
    Abstract: We use semi-parametric bin tests, regression analyses and copula modeling techniques to identify the relationship between temperature and stock market returns. After examining 25 international stock markets, we find that the negative correlation is statistically significant in individual countries, i.e. the higher is the temperature, the lower the stock returns. However, we fail to find joint significance of temperature effects across markets after correcting for market comovement by seemingly unrelated regression. We also find negative temperature effects on returns are robust to different measures of daily temperature. Both constant-dependence and time-varying-dependence conditional copula models are employed to analyze the general dependence between temperature and stock market returns. The copula results show that the negative relation remains after controlling for autocorrelations, GARCH effects and non-normality and the dependence between temperature and stock market returns is relatively stable over time.
    Keywords: Stock market returns, Temperature, Copula.
    JEL: G10 G11 G14 G15
    Date: 2008–11
  6. By: Michalski, Grzegorz
    Abstract: The basic financial purpose of an enterprise is maximization of its value. Inventory management should also contribute to realization of this fundamental aim. The enterprise value maximization strategy is executed with a focus on risk and uncertainty. This article presents the consequences for the recipients firm that can result from operating risk that is related to delivery risk generated by the suppliers. The present article offers a method that uses portfolio management theory to chose the suppliers
    Keywords: Corporate liquidity; firm value; delivery risk
    JEL: M11 G39 G11 D81 G32
    Date: 2008–11–06
  7. By: Vedenov, Dmitry
    Abstract: This paper presents a copula-based methodology for modeling joint yield distributions. Copulas have been used extensively in financial literature, but have not been widely used in agricultural economics and particularly risk management. The copula approach provides a powerful and flexible method to model multivariate distributions and thus go beyond joint normality, regressibility, and mean-variance criterion. Accurate estimation of joint distributions may help to improve the results in the area of risk management and insurance obtained under more limiting assumptions.
    Keywords: Crop Production/Industries,
    Date: 2008

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