a spatial mean variance mip model for energy market risk analysis the paper presents a short term market risk model based on the markowitz mean variance method for spatial electricity markets the spatial nature is captured using the correlation of geographically separated markets and the consideration of wheeling administration the model also includes transaction costs and other practical constraints resulting in a mixed integer programming mip model the incorporation of those practical constraints makes the model more attractive than the traditional markowitz portfolio model with continuity a case study is used to illustrate the practical application of the model the results show that the mip portfolio efficient frontier is neither smooth nor concave the paper also considers the possible extension of the model to other energy markets including natural gas and oil markets

convertible debt corporate call policy and voluntary conversion this paper examines why in contrast to the predictions of finance theory firms do not call convertible debt when the conversion price exceeds the call price the empirical results suggest that the principal reason is because some firms enjoy an advantage of paying less in after tax interest than they would pay in dividends were the bond converted this cash flow incentive is the inverse of an investor s incentive to convert voluntarily if the converted dividends are greater than the bond s coupon because of taxation however the decisions by investors and firms are not symmetric and there exist bonds which the firm may not call and an investor will not convert the results also find that voluntary conversion is significantly related to both the conversion price and the differential between the coupon and the dividends on the converted stock

res and risk renewable energy s contribution to energy security a portfolio based approach abstract during the first decade of the 21st century renewable energy sources res had been gaining momentum due to environmental issues concerns about pollution and climate change have raised public awareness encouraging governments to adopt policies to preserve and protect the environment regarding energy res promotion together with energy efficiency measures has been the main policy response to address such concerns as a consequence res development during the first decade of the 21st century has been remarkable although res deployment has been mainly focused on achieving environmental goals its potential contribution to energy security went not unnoticed however it is worth noting that while the trade off between environmental goals and the use of res to accomplish them and competitiveness has been widely explored the relationship between energy security and res has received less attention both at the conceptual and energy policy levels this article tries to address such a relationship the present article focuses on renewable electricity imports as illustrated by the case of the mediterranean solar plan after introducing the energy security energy risk concept and its dimensions the article focuses on the contribution of res in terms of security of supply for a given energy mix using the portfolio theory most of the analyses of the interactions between res and energy security focus on the national level with res being mainly conceived as a substitute for fuel imports to produce electricity and reduce so called energy dependence however new transmission technologies allow the import of electricity directly from neighbouring countries far out of the range of regular electricity lines therefore this article tries to broaden the analysis of energy security to international res trade flows applying the previous discussion to the main project involving significant international green electricity trade the mediterranean solar plan

on the risk spillover across the oil market stock market and the oil related cds sectors a volatility impulse response approach abstract compared to credit default swap cds literature this study focuses on the magnitude of volatility transmission and the risk spillover mechanism across the oil market financial market risks and the oil related cds sectors our dataset includes futures prices of west texas intermediate wti and seven different measures of markets and credit risks four of the vast risk measures are the oil related cdss for auto chemicals natural gas and utility sectors in addition three measures of the financial market risk the one month expected equity volatility measured by vix move and smove are included the daily dataset covers the period from 6 january 2004 to 2 february 2016 the volatility transmission mechanism across the oil and financial markets and cds sectors is examined using the volatility impulse response model we evaluate the risk transmission due to several recent crisis shocks around the world and the results show complicated transmission mechanisms that spread over long periods among these events the lehman brothers bankruptcy has destabilizing effects on all oil related sectors findings also show that all oil market related shocks have significant risk transmission effects

pricing default swaps empirical evidence in this paper we compare market prices of credit default swaps with model prices we show that a simple reduced form model outperforms directly comparing bonds credit spreads to default swap premiums we find that the model yields unbiased premium estimates for default swaps on investment grade issuers but only if we use swap or repo rates as proxy for default free interest rates this indicates that the government curve is no longer seen as the reference default free curve we also show that the model is relatively insensitive to the value of the assumed recovery rate

macroeconomic fundamentals price discovery and volatility dynamics in emerging bond markets abstract this study characterizes volatility dynamics in external emerging bond markets and examines how prices and volatility respond to macroeconomic news as in mature bond markets surprises about macroeconomic conditions in emerging markets are found to affect both conditional returns and volatility of external bonds with the effects on volatility being more pronounced and longer lasting than those on prices yet the process of information absorption tends to be more drawn out than in mature bond markets global and regional macroeconomic news is at least as important as local news for both price and volatility dynamics

are adjustments in the default risk premium asymmetric this article employs threshold cointegration and error correction models to the default risk premium the approach allows asymmetry in the dynamic process that has not been captured in previous studies of corporate credit spreads the results indicate that the adjustment process is asymmetric and would be beneficial to investors and macroeconomic forecasters as the default risk premium may signal future business cycles

yield spreads as predictors of industrial production expectations on short rates or term premia this paper reconsiders information in the us t bill term structure for predicting movements in real monthly industrial production it is shown that although t bill spreads contain little or no predictive content increases in term premia estimated from a garch m model of the term structure do since these estimated premia are linear functions of the conditional variance of excess returns the implication is that increases in interest rate variability are associated with reductions in industrial production this evidence is robust to the inclusion of the spread between the 10 year tbond yield and one month t bill yields the t bill term structure therefore contains information which is independent of the long end of the term structure

the information in the high yield bond spread for the business cycle evidence and some implications the market for high yield below investment grade corporate bonds developed in the middle 1980s we show that since this time the high yield spread has had significant explanatory power for the business cycle we interpret this finding as possibly symptomatic of financial factors at work in the business cycle along the lines suggested by the financial accelerator we also show that over this period the high yield spread outperforms other leading financial indicators including the term spread the paper bill spread and the federal funds rate we conjecture that changes in the conduct of monetary policy over time may account for the reduced informativeness of these alternative indicators all of which are tied closely to monetary policy copyright 1999 by oxford university press

electricity portfolio management optimal peak off peak allocations electricity purchasers manage a portfolio of contracts in order to purchase the expected future electricity consumption profile of a company or a pool of clients this paper proposes a mean variance framework to address the concept of structuring the portfolio and focuses on how to optimally allocate positions in peak and off peak forward contracts it is shown that the optimal allocations are based on the difference in risk premiums per unit of day ahead risk as a measure of relative costs of hedging risk in the day ahead markets the outcomes of the model are then applied to show i that it is typically not optimal to hedge a baseload consumption profile with a baseload forward contract and ii that under reasonable assumptions risk taking by the purchaser is rewarded by lower expected costs

economic growth and energy consumption causal nexus viewed through a bootstrap rolling window one puzzling results in the literature on energy consumption economic growth causality is the variability of results particularly across sample periods sample sizes and model specification in order overcome these issues this paper analyzes the causal links between energy consumption and economic growth for g 7 countries using bootstrap granger non causality tests with fixed size rolling subsamples the data used includes annual total energy consumption and real gross domestic product gdp series from 1960 to 2006 for g 7 countries excluding germany for which the sample period starts from 1971 using the full sample bootstrap granger causality test we find that there is predictive power from energy consumption to economic growth only for canada however parameter instability tests show that none of the estimated models have constant parameters and hence the full sample results are not reliable analogous to the full sample results the results obtained from the bootstrap rolling window estimation indicate no consistent causal links between energy consumption and economic growth we however find that causal links are present between the series in various subsamples furthermore these subsample periods correspond to significant economic events indicating that the findings are not statistical artefacts but correspond to real economic changes our results encompass previous findings and offer an explanation to varying findings

the slope of the yield curve and real economic activity tracing the transmission mechanism abstract the slope of the yield curve in the us and the uk is strongly associated with the temporary rather than the permanent components of real economic activity suggesting that the yield curve affects economic activity primarily through the demand side

cointegration and threshold adjustment this article proposes an extension to the engle granger testing strategy by permitting asymmetry in the adjustment toward equilibrium in two different ways we demonstrate that our test has good power and size properties over the engle granger test when there are asymmetric departures from equilibrium we consider an application namely whether there exists cointegration among interest rates for instruments with different maturities this issue has been widely tested with mixed results we argue that either cautious policy or possibly opportunistic behavior on the part of the federal reserve implies that an equilibrium relationship between short and long term interest rates exists but that adjustments from disequilibrium are asymmetric in nature empirical tests using u s yields confirm the asymmetric nature of error correction among interest rates of different maturities

high penetration wind generation impacts on spot prices in the australian national electricity market this paper explores wind power integration issues for the south australian sa region of the australian national electricity market nem by assessing the interaction of regional wind generation electricity demand and spot prices over 2 recent years of market operation sa s wind energy penetration has recently surpassed 20 and it has only a limited interconnection with other regions of the nem as such it represents an interesting example of high wind penetration in a gross wholesale pool market electricity industry our findings suggest that while electricity demand continues to have the greatest influence on spot prices in sa wind generation levels have become a significant secondary influence and there is an inverse relationship between wind generation and price no clear relationship between wind generation and demand has been identified although some periods of extremely high demand may coincide with lower wind generation periods of high wind output are associated with generally lower market prices and also appear to contribute to extreme negative price events the results highlight the importance of electricity market and renewable policy design in facilitating economically efficient high wind penetrations

optimal wind power deployment in europe a portfolio approach geographic diversification of wind farms can smooth out the fluctuations in wind power generation and reduce the associated system balancing and reliability costs the paper uses historical wind production data from five european countries austria denmark france germany and spain and applies the mean variance portfolio theory to identify cross country portfolios that minimise the total variance of wind production for a given level of production theoretical unconstrained portfolios show that countries spain and denmark with the best wind resource or whose size contributes to smoothing out the country output variability dominate optimal portfolios the methodology is then elaborated to derive optimal constrained portfolios taking into account national wind resource potential and transmission constraints and compare them with the projected portfolios for 2020 such constraints limit the theoretical potential efficiency gains from geographical diversification but there is still considerable room to improve performance from actual or projected portfolios these results highlight the need for more cross border interconnection capacity for greater coordination of european renewable support policies and for renewable support mechanisms and electricity market designs providing locational incentives under these conditions a mechanism for renewables credits trading could help aligning wind power portfolios with the theoretically efficient geographic dispersion 2009 elsevier ltd

valuing fuel diversification in power generation capacity planning abstract deterministic capacity planning problems in electricity systems can be solved by comparing technology specific long term and short term marginal costs in an uncertain market environment mean variance portfolio mvp theory provides a consistent framework to balance risk and return in power generation portfolios focusing on fuel price risks mvp theory can be adopted to determine the welfare efficient system generation technology mix existing literature on mvp applications in electricity generation markets uses predominantly numerical methods to characterize portfolio risks in contrast this article presents a novel analytical approach combining conceptual elements of classical capacity planning models and mvp theory to derive the efficient portfolio structure consisting of an arbitrary number of plant technologies given uncertain fuel prices for this purpose we provide a static optimization model which allows to fully capture fuel price risks in a mean variance portfolio framework the analytically derived optimality conditions contribute to a better understanding of the optimal investment policy and its risk characteristics compared to existing numerical methods furthermore we demonstrate an application of the proposed framework and provide results for the german electricity market which has been hardly treated in mvp literature on electricity markets this article provides easily interpretable analytical optimality conditions for efficient generation portfolios from a societal point of view and therewith contributes to a better understanding of mvp in electricity applications

directional predictability from oil market uncertainty to sovereign credit spreads of oil exporting countries evidence from rolling windows and crossquantilogram analysis abstract given the recent collapse of oil prices this study investigates the directional predictability from the oil market uncertainty to the sovereign credit default swap cds spreads of four oil exporting gcc countries bahrain qatar saudi arabia and united arab emirates and five other oil exporting countries brazil mexico norway russia and venezuela using the modified bootstrap rolling window approach the empirical results reveal a significant directional predictability from oil uncertainty to the cds spreads of most of those oil exporting countries during the subperiods 2010 2011 and 2014 2015 that is during the periods when oil volatility follows a rising trend the most significant directional predictability is found for qatar bahrain saudi arabia and norway particularly during the 2014 2015 oil price collapse subperiod whereas there is no directional predictability found in the case of brazil for mexico the oil market uncertainty predicts cds spreads mostly during 2014 and for venezuela the directional predictability flows are highly impactful and concentrated during 2011 13 to check the robustness of our estimations we use a novel quantile dependence measure called the cross quantilogram that was developed by han et al 2016 the estimation results of this approach confirm our main findings and indicate that the surge in oil volatility predicts the cds spreads in different quantiles overall the findings highlight that the sovereign credit risk of the gcc and the other oil exporting countries is at least partially driven or directionally predicted by the oil volatility shocks this has important implications for investment and policy decisions

convertible bonds are not called late starting with ingersoll 1977b the academic literature has repeatedly sought to explain why convertible bonds are called late the findings here demonstrate there is no call delay to explain this paper finds that most convertible bonds given their call protection are called as soon as possible for those that are not there are significant cash flow advantages to delaying the median call delay for all convertible bonds is less than four months if a safety premium is desired to assure the conversion value will exceed the call price at the end of call notice period the median call period is less than a month the question of what is the optimal call policy for convertible bonds has attracted considerable attention since brennan and schwartz 1977 and ingersoll s 1977a seminal work that work suggests that the optimal call policy is to call the bond when the conversion value first exceeds the call price since forcing conversion eliminates the bondholders premium or option value however empirical studies e g ingersoll 1977b and constantinides and grundy 1987 claim that firms consistently deviate from this call policy and delay calls this claim is based on ingersoll s finding that firms wait on average until the conversion value exceeds the call price by 43 9 a result confirmed in mikkelson 1985 trying to explain this call delay phenomenon has generated an impressive literature to date however no one has actually documented whether there is a delay or measured how long the delay is in addition the existing empirical work has focused either on a subsample of called bonds or on a subsample of bonds remaining uncalled at a given point in time these partial samples are not adequate to empirically determine average call delays for convertible bonds or to distinguish between the various hypotheses proposed for call

market efficiency bounded rationality and supplemental business reporting disclosures the aicpa special committee on financial reporting has urged disclosure of relevant forward looking information on risks and opportunities to supplement conventional financial statements we conduct a laboratory market experiment to assess the effects of such disclosures on capital allocation decisions we develop two sets of competing hypotheses regarding how capital markets react to supplemental disclosures one set is based on the assumption of semi strong market efficiency while the other posits that the bounded rationality of individual traders leads to inefficient market prices we find that explicit disclosure of management s best estimate of an uncertain quantity improves market efficiency even though this disclosure is redundant with information in financial statements second we find disclosure of an upper bound of management s estimate has the potential to bias security prices upward while informationally equivalent disclosure of both upper and lower bounds removes this bias these results suggest that experimental market reactions to these supplemental disclosures are inconsistent with market efficiency supplemental analyses of individuals price predictions and trading behavior support our conclusion that inefficiencies are at least partially attributable to individual information processing biases

a real option model for renewable energy policy evaluation with application to solar pv power generation in china abstract this study proposes a policy evaluation model from the perspective of government and investors the proposed model which integrates american option method and two factor learning curve method can be used to evaluate the unit decision value and save path rate for renewable energy development and examine the existence of balance point of interest several uncertain factors including non renewable energy cost carbon price renewable energy cost and price subsidy are all considered in this model the model has been applied to evaluate the solar photovoltaic pv power generation in china our empirical results show that real option analysis roa is more effective than net present value analysis npv when handling uncertainty under current level of subsidy the government would suffer loss and the investors could benefit so that it is difficult to achieve the balance of interest during the planning period with the reduction of subsidy rate they can achieve the balance of interest

large sample evidence on firms year over year md a modifications the securities and exchange commission sec has expressed concern about the informativeness of firms management discussion and analysis mda the price reaction to md a modification scores has also weakened suggesting a decline in md a usefulness

optimal investment portfolio in renewable energy the spanish case abstract this article presents a model for investing in renewable energies in the framework of the spanish electricity market in a way that risk is minimised for the investor while returns are maximised the model outlined here is based on an economic model for calculating cash flows intended to obtain the internal rate of return irr of the different energies being studied wind photovoltaic mini hydro and thermo electrical the irrs obtained are considered the returns on investments while their standard deviations are considered associated risks in order to minimise risk a comprehensive portfolio of investments is created that includes all of the available energies by means of a system of linear equations the solution of the linear system is graphically checked using the efficient frontier method for the different financing options several case studies within the renewable energies plan per is its spanish abbreviation that is in force in spain in the period 2005 2010 are analysed in order to illustrate the method as are other case studies using different types of financing helping us to reach the pertinent conclusions

evidence that the zero earnings discontinuity has disappeared abstract discontinuities in earnings distributions at zero have been widely cited as evidence of earnings management but not without controversy recent research suggests discontinuities may be mere artifacts of certain research design choices we find that the well known zero earnings discontinuity disappears soon after passage of the sarbanes oxley act sox and has not returned we also find that neither the discontinuity nor its disappearance require the effects of widely cited alternative non earnings management explanations for the zero earnings discontinuity

efficient power generating portfolio in brazil conciliating cost emissions and risk the main purpose of this paper is to assess efficiency of the brazilian electricity generation mix proposed in the 2020 decennial plan for energy expansion dpee 2020 it evaluates estimated costs risks and co2 emissions following the mean variance portfolio theory the efficiency frontier is estimated for three co2 prices scenarios no co2 prices low co2 price and high co2 price the planned portfolio in brazil presented in the dpee 2020 is relatively close to the efficient frontier however there is still room for risk mitigation by diversifying the energy portfolio as there is currently no co2 price in brazil the tendency is that diversification increases fossil fuel share in the energy mix but the introduction of a co2 price can be an option to promote renewables this type of large general market framework can contribute to reduce market uncertainties by reducing the level of government s discretionary activism

impact of renewables on electricity markets do support schemes matter abstract rising renewable shares influence electricity markets in several ways among others average market prices are reduced and price volatility increases therefore the missing money problem in energy only electricity markets is more likely to occur in systems with high renewable shares nevertheless renewables are supported in many countries due to their expected benefits the kind of support instrument can however influence the degree to which renewables influence the market while fixed feed in tariffs lead to higher market impacts more market oriented support schemes such as market premiums quota systems and capacity based payments decrease the extent to which markets are affected this paper analyzes the market impacts of different support schemes for this purpose a new module is added to an existing bottom up simulation model of the electricity market in addition different degrees of flexibility in the electricity system are considered a case study for germany is used to derive policy recommendations regarding the choice of support scheme

economic consequences of accounting standards the lease disclosure rule change this accounting standard essentially rearranged capital lease disclosures from footnotes to the balance sheet mandated capitalization substantially altered key accounting ratios our results document a systematic substitution from capital leases to operating leases and nonlease sources of financing in addition lessees appear to reduce book leverage by increasing equity and reducing conventional debt the magnitudes of these responses are cross sectionally related to preadoption levels of footnoted capital leases

debt and the marginal tax rate abstract do taxes affect corporate debt policy this paper tests whether the incremental use of debt is positively related to simulated firm specific marginal tax rates that account for net operating losses investment tax credits and the alternative minimum tax the simulated marginal tax rates exhibit substantial variation due to the dynamics of the tax code tax regime shifts business cycle effects and the progressive nature of the statutory tax schedule using annual data from more than 10 000 firms for the years 1980 1992 i provide evidence which indicates that high tax rate firms issue more debt than their low tax rate counterparts

a joint analysis of market indexes in credit default swap volatility and stock markets abstractthis paper analyses the joint dynamics of the cds volatility and stock markets using both var and markov regime switching var models with market index data it shows that the joint behaviour of the three markets is better characterized by the markov model with two regimes corresponding to low and high volatile market conditions the relationship between changes in the market indexes under a regime is consistent with theory and persistent the information transmission process of shocks to the markets is similar for the two regimes with a more important role for cds shock and the volatility in the money market is an important determinant of regime switching the findings have practical implications particularly for hedging strategies with market indexes under different market conditions

economic policy uncertainty shocks and stock bond correlations evidence from the us market abstract this paper examines the effects of economic policy uncertainty shocks on stock bond correlations for the us market we devise a general framework which distinguishes a positive shock from a negative one and nests either as its special case the results show that innovations in the policy uncertainty index impact negatively and asymmetrically on the subsequent stock bond correlations which are characterized by a structural break and positive type asymmetry

dynamic co movements of stock market returns implied volatility and policy uncertainty we examine time varying correlations among stock market returns implied volatility and policy uncertainty our findings suggest that correlations are indeed time varying and sensitive to oil demand shocks and us recessions

uncertainty in electricity markets from a semi nonparametric approach abstract this paper introduces a semi nonparametric snp methodology for the modeling of skewness leptokurtosis and high order moments in electricity markets we highlight the importance of accurately measuring these features in many contexts e g design of power plants with different technologies fuel prices and energy demand and the need for using flexible non normal densities we show that the snp approach describes the uncertainty in an electricity markets reducing the limitations that normality and parametric density functions impose our application covers a wide variety of colombian electricity variables including spot price national energy demand the climate index oni and the series of hydrologic inflows for different rivers for such variables we find that the snp outperforms the normal distribution in terms of accuracy measures based on maximum likelihood estimation as a result our methodology has direct applications for risk analysis and portfolio choice related to electricity markets and for implementing policies on electricity markets that improve efficiency and sustainability

portfolio applications in electricity markets review private investor and manager perspective trends abstract the private sector plays a major role in the expansion and operation of power systems in most countries especially those running liberalized electricity markets policymakers have the task of inducing private agents through their regulatory designs to make decisions that point toward social welfare maximization conversely it is a task of private agents to protect themselves against the risks of the sector including regulatory risks international fuel price uncertainty climate change policies natural resource availability electricity demand uncertainty co2 clearance prices etc instead of hiding all of these risks within the total project costs and losing competitiveness private agents can use diversification as a strategy to deal with them this paper presents a review of the main applications voids and challenges of portfolio optimization for two key agents of the private sector investors and managers the problem of the investor is to design a technology portfolio to invest in that maximizes its expected returns and limits risks while the manager has to design a portfolio of financial physical instruments long term contracts futures etc to sell buy electricity and hedge against price risks we have found two fundamental issues in the literature the first and most important is excessive confidence in historical data and statistical analysis for predicting future price behavior for a changing future in detriment of more structural analysis structural analysis can include particularities of modern power systems such as future transmission changes congestion operational constraints ramps new entrants new technologies and new demand grow patterns that cannot be taken into account by simply analyzing price historical values the second is the omission of renewable complementarities which is a proven characteristic of dispersed renewable plants that may have important risk mitigation effects although it has largely been ignored in portfolio analysis due to insufficient data modeling limitations and computational complexity

the consequences of the fasb s 1998 proposal on accounting for stock option repricing abstract we examine repricing activity surrounding the fasb s 1998 announcement regarding accounting for repriced options we find that repricing increases during and decreases after the 12 day window between the announcement and proposed effective dates consistent with firms timing repricings to avoid recording an expense we find that firms experiencing increasing earnings patterns firms with earnings around zero and growth firms are more likely to reprice in the window but having repriced recently decreases the likelihood of doing so the evidence suggests that firms trade off financial reporting benefits against reputation costs in decisions to time repricings to get favorable accounting treatment

renewables and climate change mitigation irreversible energy investment under uncertainty and portfolio effects abstract ongoing negotiations under the unfccc center around the possibilities for stabilization of greenhouse gases at a safe level new energy technologies are assumed to make major contributions to this goal however in the light of scientific uncertainty e g about climate sensitivity feedback effects etc market uncertainty e g fuel price volatility technological uncertainty e g availability of renewable technology socio economic uncertainty e g development of different macroeconomic factors and policy uncertainty e g about commitment to specific targets and stability of co2 prices it is difficult to assess the importance of different technologies in achieving robust long term climate risk mitigation one example currently debated in this context is biomass based energy which can be used to produce both carbon neutral electricity and at the same time offer the possibility of negative emissions by capturing carbon from biomass combustion at the conversion facility and permanently storing it in this study we analyze the impact of uncertainty on investment decision making at the plant level in a real options valuation framework and then use the ggi scenario database iiasa 2009 as a point of departure for deriving optimal technology portfolios across different socio economic scenarios for a range of stabilization targets focusing in particular on the new low emission targets using alternative risk measures

financial optimization in the turkish electricity market markowitz s mean variance approach abstract electricity constitutes the input into many products that produced by industry and used by people hence it can be considered as a product or service that has vital importance in human life and economy since it has such special properties of instantaneous production and consumption obligation and unfeasible storage electricity market is not like other markets in a competitive electricity market generation company faces price risks and delivery risks so that risk management is an important part of a generation company and can deeply effect companies profitability this paper focuses on electricity generation asset allocation between bilateral contracts such as forward contracts and daily spot market considering constraints of generating units and spot price risks the problem is to find the optimal portfolio based on known electricity generation total costs bilateral contract prices it employed turkish historical balanced market hourly system marginal and day ahead hourly market prices between of 2006 and 2011 there are limited studies about portfolio optimization in electricity markets in literature and this paper should be considered frontier study taking spot market s hourly prices separately as risky assets markowitz mean variance optimization which is claimed to be the beginning of modern portfolio theory in financial sector is used to demonstrate this approach mean variance optimization has been successfully applied to all cases that modeled for electricity market some suggestions for future work are also listed in this paper

fuel mix diversification incentives in liberalized electricity markets a mean variance portfolio theory approach monte carlo simulations of gas coal and nuclear plant investment returns are used as inputs of a mean variance portfolio optimization to identify optimal base load generation portfolios for large electricity generators in liberalized electricity markets we study the impact of fuel electricity and co2 price risks and their degree of correlation on optimal plant portfolios high degrees of correlation between gas and electricity prices as observed in most european markets reduce gas plant risks and make portfolios dominated by gas plant more attractive long term power purchase contracts and or a lower cost of capital can rebalance optimal portfolios towards more diversified portfolios with larger shares of nuclear and coal plants

renewable energy investments under different support schemes a real options approach abstract this paper adopts a real options approach to analyze investment timing and capacity choice for renewable energy projects under different support schemes the main purpose is to examine investment behavior under the most extensively employed support schemes namely feed in tariffs and renewable energy certificate trading we consider both multiple sources of uncertainty under each support scheme and uncertainty with respect to any change of support scheme and we obtain both analytical when possible and numerical solutions in a nordic case study based on wind power we find that the feed in tariff encourages earlier investment nevertheless as investment has been undertaken renewable energy certificate trading creates incentives for larger projects in our baseline scenario and taking the fixed feed in tariff as a base the revenue required to trigger investments is 61 higher with renewable certificates at the same time investment capacity is 61 higher

risk spillovers in oil related cds stock and credit markets abstract this paper examines risk transmission and migration among six us measures of credit and market risk during the full period 2004 2011 period and the 2009 2011 recovery subperiod with a focus on four sectors related to the highly volatile oil price there are more long run equilibrium risk relationships and short run causal relationships among the four oil related credit default swaps cds indexes the expected equity volatility vix index and the swaption expected volatility smove index for the full period than for the recovery subperiod the auto sector cds spread is the most error correcting in the long run and also leads in the risk discovery process in the short run on the other hand the cds spread of the highly regulated natural monopoly utility sector does not error correct the four oil related cds spread indexes are responsive to vix in the short and long run while no index is sensitive to smove which in turn unilaterally assembles risk migration from vix the 2007 2008 great recession seems to have led to localization and less migration of credit and market risk in the oil related sectors

modelling the dependence structures of australian itraxx cds index in contrast to market expectations the correlation between credit default swap cds spreads and their respective stock prices in australia was found to be positive the global financial crisis gfc affected the nonlinear association between the two asset classes with firms experiencing financial distress and stock prices plummeting cdss issuers reacted to such exogenous shocks by increasing their risk premiums on their spreads reflecting the increased inherent risk by splitting the data into pre and post gfc contexts and by employing the use of archimedean copulas we observe a negative co movement in the post gfc period this finding is robust to several equity indices overall such result is critical for investors engaging in arbitrageur activities

dynamics of cds spread indexes of us financial sectors this article examines the credit default swap cds spread index for three sectors banking financial services and insurance in the short and long run in the long run the results show that the index of the insurance sector which sells the long term cds contracts has the highest adjustment while the banking sector is not error correcting in the short run although the insurance sector cds spread index has general predictive power of all sector cds spreads the evidence suggests that the banking sector particularly leads the financial services and this in turn leads the insurance sector implying a leading sector cds pricing role for the banking spreads in the short run the short run sensitivity generalized impulse response function girf and generalized variance decomposition gvdc analyses also demonstrate that the sectors credit risk responds more to credit events in the banking sector than in the other two sectors other than their own over a 50 day horizon however the lowest cross sector cds

creditgrades and the itraxx cds index market in the study reported the creditgrades model was used to calculate credit default swap spreads and the spreads were compared with empirically observed cds spreads for eight itraxx indices covering europe theoretical and empirical spread changes were found to be significantly correlated also lagged theoretical spread changes were correlated with current itraxx spread changes the correlations indicate a close relationship between the stock market and the cds market and also indicate some predictive ability of the creditgrades model simple trading strategies based on the autocorrelation and predictive ability of the model produced positive profits before trading costs when trading was within the bid ask spread

earnings management through transaction structuring contingent convertible debt and diluted earnings per share in this article we examine whether firms structure their convertible bond transactions to manage diluted earnings per share eps we find that the likelihood of firms issuing contingent convertible bonds cocos which are often excluded from diluted eps calculations under statement of financial accounting standard sfas 128 is significantly associated with the reduction that would occur in diluted eps if the bonds were traditionally structured we also document that firms use of eps based compensation contracts significantly affects the likelihood of coco issuance and find weak evidence that reputation costs measured using earnings restatement data play a role in the structuring decision these results are robust to controlling for alternative motivations for issuing cocos including tax and dilution arguments in addition an examination of announcement returns reveals that investors view the net benefits and costs of cocos as offsetting one another our results contribute to the literature on earnings management diluted eps financial reporting costs and financial innovation

proxies for the corporate marginal tax rate abstract this paper focuses on how best to measure the corporate marginal tax rate which is an important input into financial analysis of the cost of capital financing policy corporate hedging and corporate reorganizations the results indicate that the simulated tax rate used by shevlin 1990 and graham 1996 although difficult to calculate is the best available proxy for the true marginal tax rate if the simulated rate is unavailable an easy to calculate trichotomous variable or the statutory marginal tax rate which captures the progressivity in the tax schedule are reasonable alternatives better than most commonly used tax variables

voluntary conversion of convertible securities and the optimal call strategy abstract we provide an explanation of why convertibles are called long after the conversion value exceeds the call price delaying the call benefits the firm if enough investors are expected to delay their voluntary conversions consistent with this theory we document that a substantial number of investors do not voluntarily convert when the common dividend exceeds the convertible s dividend plus its premium over conversion value we find that firms would not have increased common stock returns by switching to the strategy of calling to force conversion as soon as possible surprisingly we find that convertible preferreds frequently sell below conversion value

power sector investment risk and renewable energy a japanese case study using portfolio risk optimization method the conventional pricing mechanism used for electricity systematically hides huge investment risks which are embedded in the overall cost of production although consumers are often unaware of these risks they present a large financial burden on the economy this study applies the portfolio optimization concepts from the field of finance to demonstrate the scope of greater utilization of renewable energies re while reducing the embedded investment risk in the conventional electricity sector and its related financial burden this study demonstrates that re investment can compensate for the risks associated with the total input costs such costs being external volatilities of fossil fuel prices capital costs operating and maintenance costs and the carbon costs by means of example this case study shows that japan could in theory obtain up to 9 of its electricity supply from green sources as compared to the present 1 37 based on the utilization of a portfolio risk analysis evaluation explicit comparison of the monetary values of the investment risks of conventional and renewable energy sources shows that renewable energies have high market competitiveness the study concludes with a recommendation that as a business objective investors would benefit by focusing on electricity supply portfolio risk minimization instead of cost this could also inherently increase the supply of renewable energy in the market

dynamic correlation and equicorrelation analysis of global financial turmoil evidence from emerging east asian stock markets abstractthis study investigates the dynamic conditional correlations dccs between eight emerging east asian stock markets and the us stock market and analyses the dynamic equicorrelation among these nine stock markets we find a significant increase in the conditional correlations and equicorrelation in the first phase of the global financial crisis we refer to this finding as contagion from the us stock market to the emerging east asian markets we also find an additional significant process of increasing correlations and equicorrelation herding in the second phase of the global financial crisis further we employ two new models namely dccx mgarch a dcc multivariate garch model with exogenous variables and decox mgarch a dynamic equicorrelation multivariate garch model with exogenous variables to identify the channels of contagion we find that an increase in the vix index increases the conditional correlations and equicorrelation while increases in ted spreads decrease the conditional corre

an evaluation of alternative measures of corporate tax rates abstract this paper examines the ability of financial statement measures of average and marginal tax rates mtr to capture tax attributes utilizing firm level tax and financial data the results suggest commonly used average tax rate measures provide little insight about statutory tax burdens and may introduce substantial bias into analyses of tax incidence financial statement based proxies for mtr particularly those based on simulation methods are found to perform well in estimating current year tax rates both current year and present value mtr are found to be highly correlated with an easily constructed binary proxy of firms tax status

energy risk management and value at risk modeling abstract the value of energy trades can change over time with market conditions and underlying price variables the rise of competition and deregulation in energy markets has led to relatively free energy markets that are characterized by high price shifts within oil markets the volatile oil price environment after opec agreements in the 1970s requires a risk quantification value at risk has become an essential tool for this end when quantifying market risk there are various methods for calculating value at risk the methods we introduced in this paper are historical simulation arma forecasting and variance covariance based on garch modeling approaches the results show that among various approaches the hsaf methodology presents more efficient results so that if the level of confidence is 99 the value at risk calculated through hsaf methodology is greater than actual price changes in almost 97 6 percent of the forecasting period

renewable energy project project management challenges and risk abstract renewable energy is one of the most popular topics in utilization of the electric energy resources there are various types of alternative energy which can be used as electrical energy however the suitableness of the green energy in a certain country is depending on some criteria such as geographical location the availability of energy and so on in order to establish the renewable energy a well planned strategy and management must be acquired the main objective of this paper is to analyse the causal relation of some important criteria of project planning and development of a wind energy project in malaysia by using a system dynamic approach it is found that government policies investment of renewable energy energy demand geographical location and fund management are the most important criteria that need to be considered among others the diagram of causal relationship with reinforcing and balancing loop shows that the application of renewable energy in malaysia is promising in addition the information of the criteria relationship is further investigated by using the stock flow diagram from the diagram the factors that affect project s expenditure could be analysed this is very important to a developing country where more budgets can be allocated for other facilities cultures infrastructure science and technology development by utilise the renewable energy in malaysia the carbon dioxide emission can be reduced and contribution to a sustainable and long term alternative energy resources country

regime jumps in electricity prices many countries are liberalizing their energy markets participants in these markets are exposed to market risk due to the characteristics of electricity price dynamics electricity prices are known to be mean reverting very volatile and subject to frequent spikes models that describe the dynamics of electricity prices should incorporate these characteristics in order to capture the price spikes many researchers have introduced stochastic jump processes but we argue and show that this specification might lead to potential problems with specifying the true amount of mean reversion within the process in this paper we propose a regime switching model that models price spikes separated from normal mean reverting prices

the effect of accounting procedure changes on ceos cash salary and bonus compensation abstract this paper examines the effect of accounting procedure changes on cash salary and bonus compensation to ceos we estimate whether there is an adjustment to the statistical relation between compensation and corporate earnings following changes that lower earnings fifo to lifo inventory valuation and that raise earnings accelerated to straight line depreciation the results indicate that 1 subsequent to these changes salary and bonus payments are based on reported earnings rather than earnings under the original accounting method and 2 the potential compensation effect of the changes is small compared to the effect of economy or industry wide changes in compensation

evaluating the power investment options with uncertainty in climate policy abstract this paper uses a real options approach roa for analysing the effects of government climate policy uncertainty on private investors decision making in the power sector it presents an analysis undertaken by the international energy agency iea that implements roa within a dynamic programming approach for technology investment choice case studies for gas coal and nuclear power investment are undertaken with the model illustrative results from the model indicate four broad conclusions i climate change policy risks can become large if there is only a short time between a future climate policy event such as post 2012 and the time when the investment decision is being made ii the way in which co 2 and fuel price variations feed through to electricity price variations is an important determinant of the overall investment risk that companies will face iii investment risks vary according to the technology being considered with nuclear power appearing to be particularly exposed to fuel and co 2 price risks under various assumptions and iv the government will be able to reduce investors risks by implementing long term say 10 years rather than short term say 5 years climate change policy frameworks contributions of this study include 1 having created a step function with stochastic volume of jump at a particular time to simulate carbon price shock under a particular climate policy event 2 quantifying the implicit risk premium of carbon price uncertainty to investors in new capacity 3 evaluating carbon price risk alongside energy price risk in investment decision making and 4 demonstrating roa to be a useful tool to quantify the impacts of climate change policy uncertainty on power investment

using renewables to hedge against future electricity industry uncertainties an australian case study abstract a generation portfolio modelling was employed to assess the expected costs cost risk and emissions of different generation portfolios in the australian national electricity market nem under highly uncertain gas prices carbon pricing policy and electricity demand outcomes were modelled for 396 possible generation portfolios each with 10 000 simulations of possible fuel and carbon prices and electricity demands in 2030 the lowest expected cost generation portfolio includes 60 renewable energy increasing the renewable proportion to 75 slightly increased expected cost by 0 2 mwh but significantly decreased the standard deviation of cost representing the cost risk increasing the renewable proportion from the present 15 to 75 by 2030 is found to decrease expected wholesale electricity costs by 17 mwh fossil fuel intensive portfolios have substantial cost risk associated with high uncertainty in future gas and carbon prices renewables can effectively mitigate cost risk associated with gas and carbon price uncertainty this is found to be robust to a wide range of carbon pricing assumptions this modelling suggests that policy mechanisms to promote an increase in renewable generation towards a level of 75 by 2030 would minimise costs to consumers and mitigate the risk of extreme electricity prices due to uncertain gas and carbon prices

an analysis of value destruction in at t s acquisition of ncr abstract at t s 7 5 billion acquisition of ncr decreased the wealth of at t shareholders by between 3 9 billion and 6 5 billion and resulted in negative synergies of 1 3 to 3 0 billion we find that at t paid a documented 50 million and possibly as much as 500 million to satisfy pooling accounting thus boosting eps by roughly 17 but leaving cash flows unchanged we conclude that at t s decision to acquire ncr in what the market perceived as a value destroying transaction was related at least in part to the 1984 consent decree with the department of justice that led to the break up of at t

international economic policy uncertainty and stock prices wavelet approach this paper examines the link between economic policy uncertainty and stock price in both a time and frequency domain wavelet analysis reveals that the relationship is generally negative but changes over time exhibiting low to high frequency cycles moreover the timing of frequency changes overlaps when us policy uncertainty comoves with other countries policy uncertainty

eurozone sovereign contagion evidence from the cds market 2005 2010 abstract this paper analyses the dynamics of the credit default swap cds market of piigs france germany and the uk for the period of 2005 2010 the study is performed on the basis of the datastream and dtcc data on cds spreads and the bis data on cross border exposures the analysis of the data shows that sovereign risk mainly concentrates in the eu countries the ewma correlation analysis and the granger causality test demonstrate that there was contagion effect since correlations and cross county interdependencies increased already after august 2007 furthermore the irf analysis shows that among piigs the cds markets of spain and ireland have the biggest impact on the european cds market whereas the cds market of the uk does not cause a big distress in the eurozone the adjusted correlation analysis confirms that greece and other piigs even spain and italy have lower capacity to trigger contagion than core eu countries besides portugal is the most vulnerable country in the sample whereas the uk is the most immune to shocks

the use of real options approach in energy sector investments abstract energy shortage global warming and climate change led to an increase in the use of alternative sources of energy with renewable energy sources res playing a fundamental role in this new energetic paradigm however the investment costs often constitute a major barrier to their spread use moreover the overall benefits of renewable energy technologies are often not well understood and consequently they are often evaluated to be not as cost effective as traditional technologies from the moment that the energy sector started a deregulation process with a high level of competitiveness and associated increased market uncertainty traditional project evaluation techniques alone became insufficient to properly deal with these additional risk and uncertainty factors the diffusion of the renewable energy technologies is also affected by this feature the way investors evaluate their investments call now for the use of more sophisticated evaluation techniques real options approach can deal with these issues and as so began to be considered and applied for the energy sector decision aid this approach it is now extensively widespread in evaluating investment projects in the energy sector a large set of applications in almost all fields of energy decision making from electricity generation technologies appraisal to policy evaluation is available in the literature however the use of this technique in the field of res is still limited and worth to be analysed this paper addresses this issue a review of the current state of the art in the application of real options approach to investments in non renewable energy sources and res is presented giving perspectives for further research in this field

option valuation with co integrated asset prices abstract this paper investigates theoretical and practical aspects of options that are based upon two or more assets which are co integrated for this purpose a new discrete time model of asset prices is developed a model featuring both the co integration property as well as stochastic volatilities using a garch equilibrium based option pricing approach it is shown that when volatilities are deterministic the option prices do not depend on the co integration parameters except for the mis specification effect as to the manner in which the volatilities are estimated however with stochastic volatilities the option prices explicitly depend upon the co integration parameters in order to understand these results better this paper also examines a continuous time diffusion limit of the asset price system and empirically studies the co integration effect using spread options based upon the s p500 and the nasdaq100 these numerical results suggest that consideration of co integration can substantially alter the value delta and vega of a spread option