estimating asset correlations from stock prices or default rates which method is superior this paper sets out to help explain why estimates of asset correlations based on equity prices tend to be considerably higher than estimates based on default rates resolving this empirical puzzle is highly important because firstly asset correlations are a key driver of credit risk and secondly both data sources are widely used to calibrate risk models of financial institutions by means of a simulation study we explore the hypothesis that differences in the correlation estimates are due to a substantial downward bias characteristic of estimates based on default rates by varying the time horizon the default probability the asset correlation and the number of firms in the portfolio we investigate these estimators in a systematic comparative study our results suggest that correlation estimates from equity returns are more efficient than those from default rates this finding still holds if the model is misspecified such that asset correlations follow a vasicek process which affects foremost the estimates from equity returns the results lend support for the hypothesis that the downward bias of default rate based estimates is an important although not the only factor to explain the differences in correlation estimates furthermore our results help to quantify the estimation error of asset correlations dependent on the true values of default probability and asset correlation

understanding heterogeneous preferences in random utility models a latent class approach a finite mixture approach toconditional logit models is developed in whichlatent classes are used to promoteunderstanding of systematic heterogeneity the model is applied to wilderness recreationin which a branded choice experiment involvingchoice of one park from a demand system wasadministered to a sample of recreationists the basis of membership in the classes orsegments in the sample involved attitudinalmeasures of motivations for taking a trip aswell as their stated preferences overwilderness park attributes the econometricanalysis suggested that four classes of peopleexist in the sample using the model toexamine welfare measures of some hypotheticalpolicy changes identified markedly differentwelfare effects than the standard singlesegment model and provided insight into thedifferential impact of alternative policies

public preferences for hydrogen buses comparing interval data ols and quantile regression approaches we use a quantile regression qr approach to analyse contingent valuation estimates of public willingness to pay wtp for the air and noise pollution reductions associated with the introduction of hydrogen buses in london qr results show that variables that were not significant in interval regression or ordinary least squares regression become significant at certain quantiles along the wtp distribution in addition the determinants of wtp at the lower tail of the distribution differ from those at the higher end of the distribution our findings illustrate the usefulness of quantile regression methods for analysing contingent valuation data enhancing our understanding of the determinants of willingness to pay

mitigating the pro cyclicality of basel ii policy discussions on the recent financial crisis feature widespread calls to address the pro cyclical effects of regulation the main concern is that the new risk sensitive bank capital regulation basel ii may amplify business cycle fluctuations this paper compares the leading alternative procedures that have been proposed to mitigate this problem we estimate a model of the probabilities of default pds of spanish firms during the period 1987 2008 and use the estimated pds to compute the corresponding series of basel ii capital requirements per unit of loans these requirements move significantly along the business cycle ranging from 7 6 in 2006 to 11 9 in 1993 the comparison of the different procedures is based on the criterion of minimizing the root mean square deviations of each adjusted series with respect to the hodrick prescott trend of the original series the results show that the best procedures are either to smooth the input of the basel ii formula by using through the cycle pds or to smooth the output with a multiplier based on gdp growth our discussion concludes that the latter is better in terms of simplicity transparency and consistency with banks risk pricing and risk management systems for the portfolio of spanish commercial and industrial loans and a 45 loss given default lgd the multiplier would amount to a 6 5 surcharge for each standard deviation in gdp growth the surcharge would be significantly higher with cyclically varying lgds rafael repullo jesus saurina and carlos trucharte

energy rebound effect in china s industry an aggregate and disaggregate analysis abstract considering the crucial role of industrial sectors in energy conservation this paper investigates the impact of output growth on energy consumption in china s industrial sectors with an index decomposition model and the energy rebound effect in the industrial sectors with a panel data model using the annual data during 1994 2012 the empirical results indicate that first industrial output growth is proved to be the major factor in promoting industrial energy consumption while energy intensity reduction and structure shifts across industrial sub sectors play the dominant roles in slowing down industrial energy consumption second there does exist energy rebound effect in china s aggregate industry which ranges from 20 to 76 during 1995 2012 or 39 on average in particular the energy rebound effect in manufacturing is relatively smaller during the sample period i e 28 on average finally the energy rebound effect in both china s aggregate industry and manufacturing exhibit an overall decreasing trend over time

the energy rebound effect in china s light industry a translog cost function approach abstract china is in its industrialization and urbanization development stage which requires strong energy support with the largest population in the world the energy endowment of china is relatively small therefore energy conservation is one of the key tools for china s sustainable development and energy security when making policies for conservation the chinese government needs to deal with rebound effect carefully in 2012 china s light industry consumed 316 million tons of coal equivalents accounting for 9 percent of the country s total energy consumption which is about the total amount of energy consumed by south korea based on the translog cost function the magnitude of rebound effect in china s light industry is estimated for the first time using the dynamic ordinary least squares and seemingly unrelated regression methods considering the asymmetric effects of energy prices on energy consumption the rebound effect is approximately 37 7 and all the inputs are substitutes except for labor and energy the different magnitude of rebound effect between light and heavy industry is discussed and some policy implications are provided for more effective energy conservation allowing for the rebound effect

estimating direct and indirect rebound effects for u s households with input output analysis part 2 simulation abstract this is the second part of a two part paper that integrates economic and industrial ecology methods to estimate the indirect rebound effect from residential energy efficiency investments we apply the model developed in part one to simulate the indirect rebound given an estimate of the direct rebound using a 2002 environmentally extended input output model and the 2004 consumer expenditure survey in 2002 for the u s we find an indirect rebound of 5 15 in primary energy and co 2 e emissions assuming a 10 direct rebound depending on the fuel saved with efficiency and household income the indirect rebound can be as high as 30 40 in no x or so 2 emissions for efficiency in natural gas services the substitution effect modeled in part one is small in most cases and we discuss appropriate applications for proportional or income elasticity spending assumptions large indirect rebound effects occur as the u s electric grid becomes less carbon intensive in households with large transportation demands or as energy prices increase even in extreme cases there is limited evidence for backfire or a rebound effect greater than 100 enacting pollution taxes or auctioned permits that internalize the externalities of energy use would ensure that rebound effects unambiguously increase consumers welfare

estimating direct and indirect rebound effects for u s households with input output analysis part 1 theoretical framework abstract this is the first part of a two part paper providing an analytical model of the indirect rebound effect given a direct rebound estimate that integrates consumer demand theory with the embodied energy of household spending from environmentally extended input output analysis the second part applies the model developed in part one to simulate the direct and indirect rebound for the average u s household in terms of primary energy co2e nox and so2 emissions and for energy efficiency investments in electricity natural gas or gasoline services part one provides a critical review of the largely independent economic and industrial ecology literatures on the indirect rebound by studying the two goods case and the n goods case we demonstrate that the indirect rebound is bounded by the consumer budget constraint and inversely related to the direct rebound we also compare the common proportional spending and income elasticity spending assumptions with our model of cross price elasticities including both substitution and income effects for the indirect rebound by assuming zero incremental capital costs and the same embodied energy as conventional technologies for efficient appliances we model an upper bound of the indirect rebound future work should also consider the increase in consumer welfare possible through the rebound effect

impact of energy efficiency gains on output and energy use with cobb douglas production function abstract a special issue of energy policy 28 2000 was devoted to a collection of papers edited by dr lee schipper the collection included a paper entitled a view from the macro side rebound backfire and khazzoom brookes in which it was argued that the impact of fuel efficiency gains on output roughly gdp is likely to be relatively small by cobb douglas production function however an error in the analysis leads to under estimation of the long term impact this paper first provides a partial equilibrium analysis by an alternative method for the same case and then proceeds to an analysis on the issue in a two sector general equilibrium system in the latter analysis energy price is internalized both energy use efficiency and energy production efficiency are involved

comments on using latent variable approach to estimate china s economy wide energy rebound effect over 1954 2010 by shuai shao tao huang and lili yang abstract in a recent article shao et al 2014 formulate economy wide energy rebound effect based on the ipat equation and employ latent variable approach for estimation we argue that their formulation should be revised and advocate the distinguishment between energy efficiency improvement and technological progress for estimating energy rebound effect an application to estimate china s energy rebound effect over 1981 2011 is also provided

empirical estimates of the direct rebound effect a review beginning with william stanley jevons in 1865 a number of authors have claimed that economically justified energy efficiency improvements will increase rather than reduce energy consumption jevons paradox is extremely difficult to test empirically but could have profound implications for energy and climate policy this paper summarises and critiques the arguments and evidence that have been cited in support of jevons paradox focusing in particular on the work of len brookes and harry saunders it identifies some empirical and theoretical weaknesses in these arguments highlights the questions they raise for economic orthodoxy and points to some interesting parallels between these arguments and those used by the biophysical school of ecological economics while the evidence in favour of jevons paradox is far from conclusive it does suggest that economy wide rebound effects are larger than is conventionally assumed and that energy plays a more important role in driving productivity improvements and economic growth than is conventionally assumed 2008 elsevier ltd all rights reserved

semiparametric approaches to welfare evaluations in binary response models applied welfare analysis is commonly based on mean or median benefit estimates however the whole conditional distribution of benefits is often of interest for policy makers this article compares the distributional information recovered by competing semiparametric methods results obtained using a valuation study for the improvement of water resources in brazil suggest that the semiparametric approaches are in line with each other capturing a rich heterogeneity structure that is ignored by the logit approach failure to take this structure into account may lead to the undue rejection of the project according to the kaldor hicks criterion

measuring energy rebound effect in the chinese economy an economic accounting approach estimating the magnitude of china s economy wide rebound effect has attracted much attention in recent years most existing studies measure the rebound effect through the additional energy consumption from technological progress however in general technological progress is not equivalent to energy efficiency improvement consequently their estimation may be misleading to overcome the limitation this paper develops an alternative approach for estimating energy rebound effect based on the proposed approach china s economy wide energy rebound effect is revisited the empirical result shows that during the period 1981 2011 the rebound effects in china are between 30 and 40 with an average value of 34 3

estimating the rebound effect in us manufacturing energy consumption abstract the energy price shocks of the 1970s are usually assumed to have increased the search for new energy saving technologies where eventual gains in energy efficiencies will reduce the real per unit price of energy services and hence the consumption of energy will rise and partially offset the initial reduction in the usage of energy sources this is the rebound effect which is estimated for the us manufacturing sector using time series data applying the dynamic ols method dols when allowing for asymmetric price effects the rebound effect is found to be approximately 24 for the us manufacturing sector

a view from the macro side rebound backfire and khazzoom brookes abstract this paper attempts to delineate a few key insights extracted from theoretical macroeconomic considerations of the rebound issue the goal has been to reduce these thoughts to a clear set of assertions that if true would be useful points of reference in the ongoing discussion despite their non empirical nature

semiparametric estimation of the binary choice model for contingent valuation this paper is concerned with the estimation of the binary choice model without imposing any parametric structure on the distribution of the stochastic term we adapt the distribution free maximum l

input output analysis of co2 emissions embodied in trade the effects of sector aggregation abstract energy related co2 emissions embodied in international trade have been widely studied by researchers using the environmental input output analysis framework it is well known that both sector aggregation and spatial aggregation affect the results obtained in such studies with regard to the latter past studies are often conducted at the national level irrespective of country or economy size for a large economy with the needed data studies may be conducted at different levels of spatial aggregation we examine this problem analytically by extending the work of su et al su b huang h c ang b w zhou p 2010 input output analysis of co2 emissions embodied in trade the effects of sector aggregation energy economics 32 1 166 175 on sector aggregation we present a numerical example using the data of china and by dividing the country into eight regions it is found that the results are highly dependent on spatial aggregation our study shows that for a large country like china it is meaningful to look into the effect of spatial aggregation

a quantile approach to identify factors promoting renewable energy in european countries this paper analyses the impact of several factors on the use of renewable energy sources in a set of european union countries by applying a quantile regression approach we find that different factors are effective for different levels of renewable energy commitment and the magnitudes of some effects evolve in accordance with the level of renewable energy sources used consequently some policies that do not take into account the different stages could carry different effects the results suggest that the lobbying effect of the established industries hampers the development of renewable sources and that this effect is greater for lower initial level of renewable energy use the results reveal that environmental concerns have not yet achieved enough pressure to stimulate major developments on renewables we include two new drivers geographic area and european union directive 2001 77 ec that directive was effective in signaling the commitment to renewables namely for countries with lower renewables use

understanding technological progress and input price as drivers of energy demand in manufacturing industries in india abstract this paper presents a comprehensive analysis of energy demand behaviour of seven energy intensive manufacturing industries and the aggregate manufacturing sector in india during 1973 74 to 2011 12 the policy perform achieve and trade pat has mandated energy efficiency targets for these manufacturing industries in india we focus on two major drivers of energy demand technological progress and energy price productivity growth accounting and estimation of parametric cost function using annual survey of industry data bring out important implications regarding the role of these two drivers results suggest that these industries experienced technological progress over the study period 1973 74 to 2011 12 with significant energy saving bias during 1998 99 to 2011 12 increase in energy price has led to reduction in energy demand and augmented technological progress in most of the industries energy and material inputs are mostly substitutes during 1998 99 to 2011 12 productivity growth of energy input was induced by both technological progress and increase in energy price estimates of inter factor substitution suggest that price induced reduction in energy demand can be a capital intensive process in case of some industries rebound effect has never taken back full gains of energy efficiency policies in the context of these industries

parametric and semi nonparametric estimation of willingness to pay in the dichotomous choice contingent valuation framework standard procedures for extractingwillingness to pay wtp from dichotomouschoice cv questionnaires rely heavily uponparametric assumptions regarding thedistribution and form of wtp in the sampledpopulation however theory provides littleguidance regarding which parametricspecification to use and the resulting wtpestimates can be sensitive to the selectionsmade here we compare and contrast severalparametric and semi nonparametric estimatorsthat have been proposed in the literature examining the sensitivity of the resulting wtpestimates to the underlying distribution ofpreferences and the estimation procedureemployed

bequest values for marine resources how important for indigenous communities in less developed economies communities owning and living on ancestral land tend to have a strong sense of stewardship over the land and its resources which may translate into an economic value to present generations of being able to pass on ancestral lands to future generations i e bequest value this study estimates bequest values to local users of a traditional fishing ground on the coral coast of fiji using a contingent valuation approach using monetary as well as time based contributions bequest values are estimated at between fj 1 25 1 41 us 0 64 0 73 per individual per week or fj 183 90 us 106 91 per household per year this represents a significant proportion of stated average household expenditure comparable to spending on durable household goods and clothes and footwear these results suggest that low income groups may have significant bequest values which should be accounted for in developing economy valuation studies

using angler characteristics and attitudinal data to identify environmental preference classes a latent class model a latent class model of environmental preference groups is developed and estimated with only the answers to a set of attitudinal questions economists do not typically use this type of data in estimation group membership is latent unobserved the intent is to identify and characterize heterogeneity in the preferences for environmental amenities in terms of a small number of preference groups the application is to preferences over the fishing characteristics of green bay anglers answered a number of attitudinal questions including the importance of boat fees species catch rates and fish consumption advisories on site choice the results suggest that green bay anglers separate into a small number of distinct classes with varying preferences and willingness to pay for a pcb free green bay the probability that an angler belongs to each class is estimated as function of observable characteristics of the individual estimation is with the expectation maximization e m algorithm a technique new to environmental economics that can be used to do maximum likelihood estimation with incomplete information as explained a latent class model estimated with attitudinal data can be melded with a latent class choice model

pricing the risk of recovery in default with absolute priority rule violation abstract this paper proposes a simple approach to infer the risk neutral density of recovery rates implied by the prices of the debt securities of a firm the proposed approach is independent of modeling default arrival rates and allows for the violation of absolute priority rule the paper demonstrates that a new statistic the adjusted relative spread captures risk neutral recovery information in debt prices interest rates and firm tangible assets are shown to be significant determinants of the price of recovery an application illustrates the pricing of credit derivatives written on the realized recovery rate

importance sampling for integrated market and credit portfolio models a sophisticated approach for computing the total economic capital needed for various stochastically dependent risk types is the bottom up approach in this approach usually market and credit risks of financial instruments are modeled simultaneously as integrating market risk factors into standard credit portfolio models increases the computational burden of calculating risk measures it is analyzed to which extent importance sampling techniques previously developed either for pure market portfolio models or for pure credit portfolio models can be successfully applied to integrated market and credit portfolio models specific problems which arise in this context are discussed the effectiveness of these techniques is tested by numerical experiments for linear and non linear portfolios

credit risk in private debt portfolios default loss severity and average loss rates for a large sample of privately placed bonds are presented and compared with loss experience for publicly issued bonds the chance of very large portfolio losses is estimated and some determinants of such losses are analyzed results show ex ante riskier classes of private debt perform better on average than public debt both diversification and the riskiness of individual portfolio assets influence the bad tail of the portfolio loss distribution private placements are similar to corporate loans in that both are monitored private debt the results are thus relevant to management and securitization of private debt portfolios generally more than half of nonfinancial corporate debt finance is iss ued privately and decisions of the financial intermediaries that invest in such debt depend importantly on its credit risk regulators of such institutions are similarly attentive to portfolio credit risk and it is an important consideration in the design of securitizations of pools of private debt in spite of its importance little is known empirically about private debt credit risk especially ex ante risk as a function of portfolio characteristics many studies have examined the loan portfolio performance of banks thrifts and insurance companies but the ex ante risk characteristics of the portfo

estimating the distribution of total default losses on the spanish financial system abstract this paper quantifies the credit risk loss distribution of the spanish financial system by introducing a general monte carlo importance sampling is approach we start obtaining all the required information for the standard credit risk model then we quantify the loss distribution under the standard is method and allocate the total risk over the different institutions in the spanish financial system we extend the current is framework to deal with more general assumptions like random recoveries and market valuation we also study the variability of the risk measures over the business cycle and the possible variability due to the model parameters uncertainty our results show that this approach can be very useful for banking supervisors from a macroprudential point of view and that the risk allocation can vary considerably depending on the valuation model under analysis

determinants of the price premium for green energy evidence from an oecd cross section using data from a survey of households in 11 oecd countries this paper investigates the determinants of preferences for a completely green residential electricity system three important questions are addressed i how much are households willing to pay to use only renewable energy ii does willingness to pay wtp vary significantly across household groups and countries and iii what drives the decision to enter the hypothetical market for green energy and given entry what drives the level of wtp the analysis here differs from previous studies on green energy in two ways first data and analyses are comparable across countries and second a comprehensive attempt is made to understand 0 wtp and to accommodate using a censored quantile regression cqr framework unobserved heterogeneity the survey data indicate a low wtp at 11 12 of current electric bill this study also addresses a key question how important is income for understanding wtp relative to more attitudinal determinants the effect of income overall appears ambiguous with tobit like models indicating that income is not significant while the cqr indicates that income exerts a significant effect near the center of the distribution of wtp across all frameworks used a key determinant of wtp appears to be environmental attitudes particularly membership in an environmental organization

importance sampling for portfolio credit risk monte carlo simulation is widely used to measure the credit risk in portfolios of loans corporate bonds and other instruments subject to possible default the accurate measurement of credit risk is often a rare event simulation problem because default probabilities are low for highly rated obligors and because risk management is particularly concerned with rare but significant losses resulting from a large number of defaults this makes importance sampling is potentially attractive but the application of is is complicated by the mechanisms used to model dependence between obligors and capturing this dependence is essential to a portfolio view of credit risk this paper provides an is procedure for the widely used normal copula model of portfolio credit risk the procedure has two parts one applies is conditional on a set of common factors affecting multiple obligors the other applies is to the factors themselves the relative importance of the two parts of the procedure is determined by the strength of the dependence between obligors we provide both theoretical and numerical support for the method