combined use of foreign debt and currency derivatives under the threat of currency crises the case of latin american firms abstract we investigate the determinants of firms use of foreign currency derivatives in emerging markets exposed to currency crises we develop a model where a firm with international orientation chooses its optimal foreign debt and hedging ratio in the context of highly volatile exchange rate periods in five latin american countries we calibrate the model on adrs we find theoretical and empirical evidence that country specific factors i e aggregate exposure of a country to a crisis explain significantly part of our firms foreign debt and hedging policy as opposed to literature on firms in developed markets we claim that derivative markets have been effective tools for firms in these countries at least in the post crisis era

green goods are they good or bad news for the environment evidence from a laboratory experiment on impure public goods green goods such as recycled paper stationary or carbon neutral flights provide increasingly popular examples of impure public goods motivated by theoretical treatments of green goods as a bundle of private and public characteristics in proportions fixed by the provider we design an experiment with two linked treatments to test how the presence of impure public goods affects behaviour towards public good causes we set parameters such that from a standard economic perspective the presence of the impure public good is behaviourally irrelevant in a treatment where the impure public good provides only small contributions to the public good we observe that on aggregate pro social behaviour is lower in the presence of the impure public good on the contrary in the treatment where the impure public good is more generous towards the public good component at the expense of private earnings individuals are unaffected in their behaviour we observe that impure public goods that are theoretically irrelevant and are mostly self interested may hinder pro social behaviour and look for explanations in social psychology such as the phenomenon of thoughtful anchoring motivated reasoning and reluctant altruism the results from this experiment question the role of green goods in enhancing environmentally friendly behaviours

conditional dependence structure between oil prices and exchange rates a copula garch approach abstract we study the conditional dependence structure between crude oil prices and u s dollar exchange rates using a copula garch approach various copula functions of the elliptical archimedean and quadratic families are used to model the underlying dependence structure in both bearish and bullish market phases over the 2000 2011 period we find evidence of significant and symmetric dependence for almost all the oil exchange rate pairs considered the rise in the price of oil is found to be associated with the depreciation of the dollar moreover we show that student t copulas best capture the extreme dependence and that taking the extreme comovement into account leads to improve the accuracy of var forecasts our main results remain unchanged when considering alternative garch type specifications and the crisis period but are sensitive to the use of raw returns

preference reversals and the independence axiom of all of the paradoxical patterns of behavior reported in laboratory experiments one of the most perplexing for decision theorists is the preference reversal phenomenon a subject in a preference reversal experiment is typically given a choice between a lottery with a high probability of winning a modest amount of money a p bet and a lottery with a low probability of winning a large amount of money a bet the lowest amount of money for which the subject would willingly sell either of these lotteries is also elicited the most common reversal is for a subject to choose the p bet over the bet but to put a higher selling price on the bet preference reversals were first reported by harold lindman 1971 and sarah lichtenstein and paul slovic 1971 in discussing the psychologists discovery of such reversals david grether and charles plott remark the inconsistency is deeper than mere lack of transitivity or even stochastic transitivity it suggests that no optimization principles of any sort lie behind even the simplest of human choices 1979 p 623 this paper offers a simple alternative explanation of documented preference reversals an explanation that does not require the abandonment of the transitivity assumption

do subjects remember the past in many experiments experimenters use the random lottery incentive mechanism and ask many questions to each subject that is at the end of the experiment just one of the questions is picked at random and the subject paid on the basis of their answer to this one question the idea is that subjects should separate the various questions and reply to each as if it were a separate question this procedure is methodologically sound if the subjects preferences obey expected utility eu theory which implies a form of separation but if they do not this incentive mechanism is open to criticism indeed many referees use this argument against the research they argue that subjects do not consider questions separately if the questions are revealed to the subjects one by one then the appropriate alternative hypothesis is that their behaviour evolves with the questions here this hypothesis is tested that the questions already answered affect the answers to the subsequent questions the analysis shows that

semiparametric estimation of multi asset portfolio tail risk abstract when correlations between assets turn positive multi asset portfolios can become riskier than single assets this article presents the estimation of tail risk at very high quantiles using a semiparametric estimator which is particularly suitable for portfolios with a large number of assets the estimator captures simultaneously the information contained in each individual asset return that composes the portfolio and the interrelation between assets noticeably the accuracy of the estimates does not deteriorate when the number of assets in the portfolio increases the implementation is as easy for a large number of assets as it is for a small number we estimate the probability distribution of large losses for the american stock market considering portfolios with ten fifty and one hundred assets of stocks with different market capitalization in either case the approximation for the portfolio tail risk is very accurate we compare our results with well known benchmark models

portfolio selection with uncertain exit time a robust cvar approach abstract in this paper we explore the portfolio selection problem involving an uncertain time of eventual exit to deal with this uncertainty the worst case cvar methodology is adopted in the case where no or only partial information on the exit time is available and the corresponding problems are integrated into linear programs which can be efficiently solved moreover we present a method for specifying the uncertain information on the distribution of the exit time associated with exogenous and endogenous incentives numerical experiments with real market data and monte carlo simulation show the usefulness of the proposed model

mean var portfolio optimization a nonparametric approach portfolio optimization involves the optimal assignment of limited capital to different available financial assets to achieve a reasonable trade off between profit and risk we consider an alternative markowitz s mean variance model in which the variance is replaced with an industry standard risk measure value at risk var in order to better assess market risk exposure associated with financial and commodity asset price fluctuations realistic portfolio optimization in the mean var framework is a challenging problem since optimizing var leads to a non convex np hard problem which is computationally intractable in this work an efficient learning guided hybrid multi objective evolutionary algorithm mode gl is proposed to solve mean var portfolio optimization problems with real world constraints such as cardinality quantity pre assignment round lot and class constraints a learning guided solution generation strategy is incorporated into the multi objective optimization process to promote efficient convergence by guiding the evolutionary search towards promising regions of the search space the proposed algorithm is compared against the non dominated sorting genetic algorithm nsga ii and the strength pareto evolutionary algorithm spea2 experimental results using historical daily financial market data from s p 100 and s p 500 indices are presented experimental results shows that mode gl outperforms two existing techniques for this important class of portfolio investment problems in terms of solution quality and computational time the results highlight that the proposed algorithm is able to solve the complex portfolio optimization without simplifications while obtaining good solutions in reasonable time and has significant potential for use in practice

the measurement and sources of technological change biases with an application to postwar japanese agriculture technological change bias in agriculture has important effects on and is affected by other changes in an economy labour saving technological change for example enables more farm labour to migrate to the non farm sector kako 1978 a land using bias on the other hand may stimulate efficiency differentiation among farm groups and lead to a rise in farm land prices lee 1980a while a machinery using bias accelerates the rate of investment in agricultural machinery all of these affect the income distribution as well as the economic growth path of the economy in spite of its importance there are relatively few empirical studies of biases in technological change the purpose of this paper is to present first an empirical method of measuring technological change biases in many factor production with an application to postwar japanese agriculture and then to investigate the factors that guided the evolution of biases in agriculture sources of biases have been one of the critical concerns of growth economics relative factor prices have been asserted to be the prime motivator of biases however land size per farm output price and innovation lags are also important factors affecting technological change biases the fundamental method used here to test these hypotheses is to measure the biases in four regions among which economic variables have been lifferent or have moved at different rates and then to examine the relationship between the measured biases and the economic variables since the japanese agriculture sector has undergone substantial technological changes in the rapid economic growth since the second world war it provides an ideal case study which is of considerable relevance to similar but less developed countries in south east asia in the first section we present a theory of measuring biases in many factor production using a production function approach in section ii the homogeneous translog production function is estimated with micro farm data on rice production in postwar japan section iii analyses the characteristic structure of technological change in postwar japanese agriculture and then investigates the sources of the biases following the method presented in the final section we draw conclusions about the sources and implications of the measured biases

does the basle capital accord reduce bank fragility an assessment of the value at risk approach abstract we examine the economic implications arising from a bank using a var constrained mean variance model for the selection of its trading portfolio as a consequence of the basle capital accord surprisingly we show that when a var constraint is imposed it is plausible that certain banks will end up selecting riskier portfolios than they would have chosen in the absence of the constraint accordingly regulators such as the basle committee on banking supervision should be aware that allowing a bank to use var to determine its minimum regulatory capital may increase its fragility alternatives to var based bank capital regulation that mitigate or even preclude its perverse implications are presented

a comparison of var and cvar constraints on portfolio selection with the mean variance model in this paper we analyze the portfolio selection implications arising from imposing a value at risk var constraint on the mean variance model and compare them with those arising from the imposition of a conditional value at risk cvar constraint we show that for a given confidence level a cvar constraint is tighter than a var constraint if the cvar and var bounds coincide consequently a cvar constraint is more effective than a var constraint as a tool to control slightly risk averse agents but in the absence of a risk free security has a perverse effect in that it is more likely to force highly risk averse agents to select portfolios with larger standard deviations however when the cvar bound is appropriately larger than the var bound or when a risk free security is present a cvar constraint dominates a var constraint as a risk management tool

economic implications of using a mean var model for portfolio selection a comparison with mean variance analysis abstract we relate value at risk var to mean variance analysis and examine the economic implications of using a mean var model for portfolio selection when comparing two mean variance efficient portfolios the higher variance portfolio might have less var consequently an efficient portfolio that globally minimizes var may not exist surprisingly we show that it is plausible for certain risk averse agents to end up selecting portfolios with larger standard deviations if they switch from using variance to var as a measure of risk therefore regulators should be aware that var is not an unqualified improvement over variance as a measure of risk

market experience eliminates some anomalies and creates new ones we report two experiments which investigate whether experience of decision making in repeated markets purges behaviour of preference reversals we investigate two behavioural mechanisms that may be shaping bids in repeated auctions a tendency to adjust bids towards previously observed market prices and a tendency to reduce bids following bad market outcomes we find little support for the former but strong support for the latter also whilst just enough market exposure eliminates the typical preference reversal phenomenon continued exposure fosters the mirror image anomaly therefore although market experience shapes behaviour in our experiments it does not generally promote consistency with standard preference theory

the economic value of controlling for large losses in portfolio selection abstract research on asset pricing has shown that investor preferences include asymmetry and tail heaviness which affects the composition of optimal portfolios this article investigates the out of sample economic value of introducing the risk of very large losses in portfolio selection we combine mean variance analysis with conditional value at risk using the subadditivity property of conditional value at risk and we introduce a two stage method that preserves diversification while controlling for large losses we find that strategies that account both for variance and the probability of large losses outperform efficient mean variance portfolios during and after the global financial crisis

portfolio selection based on predictive joint return distribution a predictive joint return distribution can provide more useful information than moment based risk measures in portfolio selection this article develops a d vine copula caviar method to estimate an

geographic aggregation and induced innovation in american agriculture the induced innovation hypothesis is tested for the usa and western regions using cointegration procedures an error correction model separates short run and long run effects of relative price changes a significant difference in the elasticities of factor substitution along the isoquant and the innovation possibility curve implies induced innovation the estimated results support the hypothesis for washington the pacific northwest and the western region but not for the nation corroborative tests of weak exogeneity fail to support the hypothesis in any of the geographic units changes in output level and research investment do not significantly bias agricultural technology in the usa

e baying for blood noncompetitive flexible pricing in entertainment ticketing some demand side evidence this article gives some exploratory results from estimating a consumer surplus type equation which features a number of economic and demographic variables as regressors we calculate an income elasticity for the maximum surplus that individuals would ever perceive themselves to be getting by being allowed to buy at a set price the results also show that those who attend the cinema are significantly less inclined to generate a surplus in flexible price events markets whilst young adults offer to pay quite a large amount more for their heavily desired entertainment this suggests that part of the burden of a shift in ticket pricing methods may be borne by the parents of young adults

do rational demand functions differ from irrational ones evidence from an induced budget experiment various studies e g becker 1962 ariely et al 2003 have noted anomalies concerning the relationship between observed demand and the preferences presumed to motivate it we re examine these findings using experimental choice data after separating our subjects choices into rational and irrational subsets based on consistency with the axioms of revealed preference we estimate and compare demand coefficients mirroring ariely et al s coherently arbitrary choice both rational and irrational demand estimates exhibit negative price and positive endowment coefficients however a comparison of the full set of demand coefficients indicates significant differences between the two yielding an observable artefact of the preference hypothesis relaxing the goodness of fit of the revealed preference test afriat 1987 varian 1994 does not alter our findings

optimal portfolios with minimum capital requirements abstract we propose a novel approach to active risk management based on the recent basel ii regulations to obtain optimal portfolios with minimum capital requirements in order to avoid regulatory penalties due to an excessive number of value at risk var violations capital requirements are minimized subject to a given number of violations over the previous trading year capital requirements are based on the recent basel ii amendments to account for the stressed var that is the downside risk of the portfolio under extreme adverse market conditions an empirical application for two portfolios involving different types of assets and alternative stress scenarios demonstrates that the proposed approach delivers an improved balance between capital requirement levels and the number of var exceedances furthermore the risk adjusted performance of the proposed approach is superior to that of minimum var and minimum stressed var portfolios

portfolio selection with a drawdown constraint abstract when identifying optimal portfolios practitioners often impose a drawdown constraint this constraint is even explicit in some money management contracts such as the one recently involving merrill lynch management of unilever s pension fund in this setting we provide a characterization of optimal portfolios using mean variance analysis in the absence of a benchmark we find that while the constraint typically decreases the optimal portfolio s standard deviation the constrained optimal portfolio can be notably mean variance inefficient in the presence of a benchmark such as in the merrill lynch unilever contract we find that the constraint increases the optimal portfolio s standard deviation and tracking error volatility thus the constraint negatively affects a portfolio manager s ability to track a benchmark

global financial crisis and dependence risk analysis of sector portfolios a vine copula approach we use regular vine r vine canonical vine c vine and drawable vine d vine copulas to examine the dependence risk characteristics of three 20 stock portfolios from the retail manufacturing and gold mining equity sectors of the australian market in periods before during and after the 2008 2009 global financial crisis gfc our results indicate that the retail portfolio is less risky than the manufacturing counterpart in the crisis period while the gold mining portfolio is less risky than both the retail and manufacturing sector portfolios both the retail and gold stocks display a higher propensity to yield positively skewed returns in the crisis periods contrary to the manufacturing stocks the r vine is found to best capture the multivariate dependence structure of the stocks in the retail and gold mining portfolios while the d vine does it for the manufacturing stock portfolio these findings could be used to develop dependence risk and investment risk adjusted strategies for investment rebalancing and hedging which more adequately account for the downside risk in various market conditions

expected shortfall spectral risk measures and the aggravating effect of background risk or risk vulnerability and the problem of subadditivity abstract we analyze spectral risk measures srms including its most popular representative expected shortfall es with respect to gollier and pratt 1996 s concept of risk vulnerability we find that srms and risk vulnerability are mutually exclusive owing to the property of subadditivity while subadditivity is commonly regarded as the axiomatic cornerstone of srms risk vulnerability by contrast prevails if and only if superadditivity holds the lack of risk vulnerability yields questionable predictions in portfolio problems srm decision makers who split their wealth between a risk free and a risky asset do constantly opt for an increase in the risky investment when their deterministic background wealth is complemented by some additional background risk the more general setting where background wealth is already random and then becomes more risky is not as clear cut any srm decision maker may both increase or decrease the risky investment depending on the concrete instance of the portfolio problem however when random background wealth and the risky asset are jointly normally distributed srm decision makers will again unambiguously increase their risky investment we further conduct a data analysis and discuss possible implications of the findings for regulatory risk management

active portfolio management with benchmarking adding a value at risk constraint abstract we examine the impact of adding a value at risk var constraint to the problem of an active manager who seeks to outperform a benchmark while minimizing tracking error variance tev by using the model of roll 1992 a mean variance analysis of tracking error journal of portfolio management 18 13 22 we obtain three main results first portfolios on the constrained mean tev boundary still exhibit three fund separation but the weights of the three funds when the constraint binds differ from those in roll s model second the constraint mitigates the problem that when an active manager seeks to outperform a benchmark using the mean tev model he or she selects an inefficient portfolio finally when short sales are disallowed the extent to which the constraint reduces the optimal portfolio s efficiency loss can still be notable but is smaller than when short sales are allowed

risk assessment of oil price from static and dynamic modelling approaches the price gap between west texas intermediate wti and brent crude oil markets has been completely changed in the past several years the price of wti was always a little larger than that of brent for a long time however the price of wti has been surpassed by that of brent since 2011 the new market circumstances and volatility of oil price require a comprehensive re estimation of risk therefore this study aims to explore an integrated approach to assess the price risk in the two crude oil markets through the value at risk var model the var is estimated by the extreme value theory evt and garch model on the basis of generalized error distribution ged the results show that evt is a powerful approach to capture the risk in the oil markets on the contrary the traditional variance covariance vc and monte carlo mc approaches tend to overestimate risk when the confidence level is 95 but underestimate risk at the confidence level of 99 the var of wti returns is larger than that of brent returns at identical confidence levels moreover the ged garch model can estimate the downside dynamic var accurately for wti and brent oil returns

optimization of electricity retailer s contract portfolio subject to risk preferences when an electricity retailer faces volume risk in meeting load and spot price risk in purchasing from the wholesale market conventional risk management optimization methods can be quite inefficient for the management of an electricity contract portfolio in this context we develop a multistage stochastic optimization approach which accounts for the uncertainties of both electricity prices and loads and which permits the specification of conditional value at risk requirements to optimize hedging across intermediate stages in the planning horizons our experimental results based on real data from nordpool suggest that the modeling of price and load correlations is particularly important the sensitivity analysis is extended to characterize the behavior of retailers with different risk attitudes thus we observe that a risk neutral retailer is more susceptible to price related than load related uncertainties in terms of the expected cost of satisfying the load and that a risk averse retailer is especially sensitive to the drivers of the forward risk premium

asymmetric spillover effects between the shanghai and hong kong stock markets evidence from quantile lagged regression abstractthis article surveys the asymmetric spillover effects between the mainland china based shanghai composite index sci and the hong kong based hang seng index hsi using a quantile lagged regression model compared to previous studies this article based on data before and after the 2008 global financial crisis presents a more detailed analysis as we investigate the spillovers in terms of returns volatilities and exchange rates between the renminbi rmb and the hong kong dollar hkd throughout the entire conditional return distribution including the central quantiles which are closely related to the normal circumstances and the extreme quantiles which correspond to the bear and bull markets first we find that the return spillovers from its lagged returns or from the other index not only vary across time but also depend on stock state second while return volatility may boost the stock market in a bull market it accelerates the decline in a bear market third the depreciation of the

risk2 measuring the risk in value at risk the recent derivatives disasters have focused the attention of the finance industry on the need to control financial risks better this search has led to a uniform measure of risk called value at risk var which is the expected worst loss over a given horizon at a given confidence level var numbers however are themselves affected by sampling variation or estimation risk thus the risk in value at risk itself nevertheless given these limitations var is an indispensable tool to control financial risks this article lays out the statistical methodology for analyzing estimation error in var and shows how to improve the accuracy of var estimates

evaluating the dynamic performance of energy portfolios empirical evidence from the dea directional distance function abstract in recent years the complex global energy commodity market has led to increased uncertainty for energy investment returns and tremendous challenges for investors to design appropriate energy portfolios therefore we employ four popular portfolio methods to determine energy portfolios based on daily fossil fuel futures prices during 2006 2015 moreover we use the dea window analysis method and dea directional distance function to comprehensively evaluate the dynamic performance of these energy portfolios based on the efficiency perspective the empirical results indicate that first to increase investment returns the mean variance method that exclusively emphasizes the maximization of returns shows the best performance however in order to decrease the volatility and risk of investment returns the mean variance method that aims to resist risk more than make profits and the bootstrap historical simulation value at risk var method have the best performance second when the global financial crisis broke out in the second half of 2008 and energy markets experienced a sharp downturn in the second half of 2014 the dea efficiency of energy portfolios appeared relatively lower than those of their neighboring periods regardless of which portfolio method is employed finally the average dea efficiencies of energy portfolios are all higher than those of single energy investment throughout the sample period except when the equally weighted method and the information entropy comprehensive index method are used meanwhile the mean variance method that prefers profit making to risk resisting possesses the highest average dea efficiency among various methods concerned

climate policy induced investments in developing countries the implications of investment risks international climate policy has assigned the leading role in emissions abatement to the industrialized countries while developing countries remain uncommitted to binding emission reduction targets however cooperation between the industrialized and the developing world through joint implementation of emission abatement promises substantial economic gains to both parties in this context the policy debate on joint implementation has addressed the question of how investment risks to project based emission crediting between industrialized countries and developing countries affect the magnitude and distribution of such gains in our quantitative analysis we find that the incorporation of country specific investment risks induces rather small changes vis a vis a situation where investment risks are neglected only if investors go for high safety of returns is there a distinct decline in the overall volume of emission crediting and the associated total economic benefits while the welfare effects of risk incorporation for industrialized countries are unequivocally negative the implications across developing countries are ambiguous whereas low risk developing countries attract higher project volumes and benefit from higher effective prices per emission credit compared to a reference scenario without risk the opposite applies to high risk countries sensitivity analysis with respect to higher risk estimates show that shifts in the comparative advantage of emission abatement against high risk countries may become dramatic as only very low cost mitigation projects will be realized driving down the country s benefits from emission crediting to the advantage of low risk developing countries this result is supported by empirical evidence on regional imbalances of activities implemented jointly under the pilot phase of the kyoto protocol

mean variance portfolio selection with at risk constraints and discrete distributions we examine the impact of adding either a var or a cvar constraint to the mean variance model when security returns are assumed to have a discrete distribution with finitely many jump points three main results are obtained first portfolios on the var constrained boundary exhibit k 2 fund separation where k is the number of states for which the portfolios suffer losses equal to the var bound second portfolios on the cvar constrained boundary exhibit k 3 fund separation where k is the number of states for which the portfolios suffer losses equal to their vars third an example illustrates that while the var of the cvar constrained optimal portfolio is close to that of the var constrained optimal portfolio the cvar of the former is notably smaller than that of the latter this result suggests that a cvar constraint is more effective than a var constraint to curtail large losses in the mean variance model 2007 elsevier b v all rights reserved

limiting losses may be injurious to your wealth abstract theory tells us that if return distributions are independent over time an expected utility maximizing logarithmic utility investor will almost surely accumulate the most long run wealth this paper examines the robustness of the result specifically it examines the expected and unexpected long run and short run consequences of imposing value at risk and other loss constraints on power utility investors with a numerical example and empirically in an asset allocation setting covering the 1934 2008 period in addition it examines the expected and unexpected long run consequences of imposing conditional value at risk constraints on power utility and prospect theory kinked linear utility investors

incentives in experiments a theoretical analysis experimental economists currently lack a convention for how to pay subjects in experiments with multiple tasks we provide a theoretical framework for analyzing this question assuming statewise mo

biased technological change and factor demand in postwar japanese agriculture 1958 84 abstract the objective of this study is to gain a better understanding of factor substitutions in postwar japanese agriculture by shedding special light on biased technological change such biased technological change is first measured then associated with the movements of factor prices and then tested for the hicksian induced innovation hypothesis in addition a decomposition analysis is carried out in order to quantitatively examine the importance of the biased effects for determining changes in factor cost shares and factor proportions during the 1958 84 period a slightly modified stevenson greene model of the translog cost function is employed this model has at least two important advantages over ordinary translog cost functions first it incorporates time into the model such that all coefficients of the ordinary translog cost function may change over time this is more realistic than the ordinary translog cost function which assumes that all coefficients are constant over the period of estimation another attractive feature is that it enables us to test the induced innovation hypothesis directly the model is applied to the 1958 84 period by making use of farm level data the results show that technological change was biased towards saving labor and other inputs and using machinery intermediate inputs and land this biased technological change is found to be in principle consistent with the induced innovation hypothesis furthermore it is shown through decomposition analyses that the biased technological change had significant impacts on changes in factor cost shares and factor proportions during these years the empirical results of this study imply that technological change in japanese agriculture has in general proceeded in a manner consistent with factor endowments conditions since the late 1950s an implication of this study for agriculture in less developed countries is that agricultural policies seeking development through technological progress should be carried out so as to take advantage of peculiar factor endowments conditions in the individual countries

conditional value at risk spectral risk measures and non diversification in portfolio selection problems a comparison with mean variance analysis abstract we study portfolio selection under conditional value at risk and as its natural extension spectral risk measures and compare it with traditional mean variance analysis unlike the previous literature that considers an investor s mean spectral risk preferences for the choice of optimal portfolios only implicitly we explicitly model these preferences in the form of a so called spectral utility function within this more general framework spectral risk measures tend towards corner solutions if a risk free asset exists diversification is never optimal similarly without a risk free asset only limited diversification is obtained the reason is that spectral risk measures are based on a regulatory concept of diversification that differs fundamentally from the reward risk tradeoff underlying the mean variance framework

entropic risk measures and their comparative statics in portfolio selection coherence vs convexity abstract we conduct a decision theoretic analysis of optimal portfolio choices and in particular their comparative statics under two types of entropic risk measures the coherent entropic risk measure cerm and the convex entropic risk measure erm starting with the portfolio selection between a risky and a risk free asset framework of arrow 1965 and pratt 1964 we find a restrictive all or nothing investment decision under the cerm while the erm yields diversification we then address a portfolio problem with two risky assets and provide comparative statics with respect to the investor s risk aversion framework of ross 1981 here both the cerm and the erm exhibit closely interrelated inconsistencies with respect to the interpretation of their risk parameters as a measure of risk aversion for any two investors with different risk parameters it may happen that the investor with the higher risk parameter invests more in the riskier one of the two assets finally we analyze the portfolio problem risky vs risk free in the presence of an independent background risk and analyze the effect of changes in this background risk framework of gollier and pratt 1996 again we find questionable predictions under the cerm the optimal risky investment is always increasing instead of decreasing when a background risk is introduced while under the erm it remains unaffected

stochastic dominance and risk measure a decision theoretic foundation for var and c var abstract is it possible to obtain an objective and quantifiable measure of risk backed up by choices made by some specific groups of rational investors to answer this question in this paper we establish some behavior foundations for various types of var models including var and conditional var as measures of downside risk in this paper we will establish some logical connections among vars conditional var stochastic dominance and utility maximization though supported to some extents with unanimous choices by some specific groups of expected or non expected utility investors vars as profiles of risk measures at various levels of risk tolerance are not quantifiable they can only provide partial and incomplete risk assessments for risky prospects we also include in our discussion the relevant vars and several alternative risk measures for investors these alternatives use somewhat weaker assumptions about risk averse behavior by incorporating a mean preserving spread for this latter group of investors we provide arguments for and against the standard deviation versus var and conditional vars as objective and quantifiable measures of risk in the context of portfolio choice

integration of var and expected utility under departures from normality this article identifies the level of the expected utility eu risk aversion and value at risk var confidence level that yield the same choice from a given distribution of outcomes and thus allow for consistent application of the two criteria the result for a given distribution is an explicit mapping between risk aversion under eu and var for both normal and nonnormal distributions the cornish fisher expansion is used to establish adjusted mean deviates for nonnormal outcome distributions and the investor s preference function is expanded to include elements for variance skewness and excess kurtosis a farm level application with nonnormal revenue distribution illustrates these approaches

caviar conditional autoregressive value at risk by regression quantiles value at risk var has become the standard measure of market risk employed by financial institutions for both internal and regulatory purposes var is defined as the value that a portfolio will lose with a given probability over a certain time horizon usually one or ten days despite its conceptual simplicity its measurement is a very challenging statistical problem and none of the methodologies developed so far give satisfactory solutions interpreting the var as the quantile of future portfolio values conditional on current information we propose a new approach to quantile estimation which does not require any of the extreme assumptions invoked by existing methodologies such as normality or i i d returns the conditional autoregressive value at risk or caviar model moves the focus of attention from the distribution of returns directly to the behavior of the quantile we specify the evolution of the quantile over time using a special type of autoregressive process and use the regression quantile framework introduced by koenker and bassett to determine the unknown parameters since the objective function is not differentiable we use a differential evolutionary genetic algorithm for the numerical optimization utilizing the criterion that each period the probability of exceeding the var must be independent of all the past information we introduce a new test of model adequacy the dynamic quantile test applications to simulated and real data provide empirical support to this methodology and illustrate the ability of these algorithms to adapt to new risk environments