Income risk of EU coal-fired power plants after Kyoto

Coal-fired power plants may enjoy a significant advantage relative to gas plants in terms of cheaper fuel cost. Still, this advantage may erode or even turn into disadvantage depending on CO2 emission allowance price. This price will presumably rise in both the Kyoto Protocol commitment period (2008-2012) and the first post-Kyoto years. Thus, in a carbon-constrained environment, coal plants face financial risks arising in their profit margins, which in turn hinge on their so-called "clean dark spread". These risks are further reinforced when the price of the output electricity is determined by natural gas-fired plants' marginal costs, which differ from coal plants' costs. We aim to assess the risks in coal plants' margins. We adopt parameter values estimated from empirical data. These in turn are derived from natural gas and electricity markets alongside the EU ETS market where emission allowances are traded. Monte Carlo simulation allows to compute the expected value and risk profile of coal-based electricity generation. We focus on the clean dark spread in both time periods under different future scenarios in the allowance market. Specifically, bottom 5% and 10% percentiles are derived. According to our results, certain future paths of the allowance price may impose significant risks on the clean dark spread obtained by coal plants.

The Relationship between Risk and Expected Return in Europe

Revised: 2006-07

Testing the Forecasting Performance of Ibex 35 Option-implied Risk-neutral Densities

Published also as: Documento de Trabajo Banco de España 0504/2005.

Option-Implied Preferences Adjustments and Risk-Neutral Density Forecasts

The main objective of this paper is to analyse the value of information contained in prices of options on the IBEX 35 index at the Spanish Stock Exchange Market. The forward looking information is extracted using implied risk-neutral density functions estimated by a mixture of two-lognormals and three alternative risk-adjustments: the classic power and exponential utility functions and a habit-based specification that allows for a counter-cyclical variation of risk aversion. Our results show that at four-week horizon we can reject the hypothesis that between October 1996 and March 2000 the risk-neutral densities provide accurate predictions of the distributions of future realisations of the IBEX 35 index at a four-week horizon. When forecasting through risk-adjusted densities the performance of this period is statistically improved and we no longer reject that hypothesis. All risk-adjusted densities generate similar forecasting statistics. Then, at least for a horizon of four-weeks, the actual risk adjustment does not seem to be the issue. By contrast, at the one-week horizon risk-adjusted densities do not improve the forecasting ability of the risk-neutral counterparts.

Asset pricing and systematic liquidity risk: an empirical investigation of the Spanish stock market

Systematic liquidity shocks should affect the optimal behavior of agents in financial markets. Indeed, fluctuations in various measures of liquidity are significantly correlated across common stocks. Accordingly, this paper empirically analyzes whether Spanish average returns vary cross-sectionally with betas estimated relative to two competing liquidity risk factors. The first one, proposed by Pastor and Stambaugh (2002), is associated with the strength of volume-related return reversals. Our marketwide liquidity factor is defined as the difference between returns highly sensitive to changes in the relative bid-ask spread and returns with low sensitivities to those changes. Our empirical results show that neither of these proxies for systematic liquidity risk seems to be priced in the Spanish stock market. Further international evidence is deserved.

Markov Switching Risk Premium and the term structure of interest rates. Empirical evidence from US post-war interest rates

This paper considers the basic present value model of interest rates under rational expectations with two additional features. First, following McCallum (1994), the model assumes a policy reaction function where changes in the short-term interest rate are determined by the long-short spread. Second, the short-term interest rate and the risk premium processes are characterized by a Markov regime-switching model. Using US post-war interest rate data, this paper finds evidence that a two-regime switching model fits the data better than the basic model. The estimation results also show the presence of two alternative states displaying quite different features.

Consumer Expertise or Credit Risk? An empirical analysis of mortgage pricing

Loan mortgage interest rates are usually the result of a bank-customer negotiation process. Credit risk, consumer cross-buying potential, bundling, financial market competition and other features affecting the bargaining power of the parties could affect price. We argue that, since mortgage loan is a complex product, consumer expertise could be a relevant factor for mortgage pricing. Using data on mortgage loan prices for a sample of 1055 households for the year 2005 (Bank of Spain Survey of Household Finances, EFF-2005), and including credit risk, costs, potential capacity of the consumer to generate future business and bank competition variables, the regression results indicate that consumer expertise-related metrics are highly significant as predictors of mortgage loan prices. Other factors such as credit risk and consumer cross-buying potential do not have such a significant impact on mortgage prices. Our empirical results are affected by the credit conditions prior to the financial crisis and could shed some light on this issue.

Fine mapping and functional analysis of the multiple sclerosis risk gene CD6

CD6 has recently been identified and validated as risk gene for multiple sclerosis (MS), based on the association of a single nucleotide polymorphism (SNP), rs17824933, located in intron 1. CD6 is a cell surface scavenger receptor involved in T-cell activation and proliferation, as well as in thymocyte differentiation. In this study, we performed a haptag SNP screen of the CD6 gene locus using a total of thirteen tagging SNPs, of which three were non-synonymous SNPs, and replicated the recently reported GWAS SNP rs650258 in a Spanish-Basque collection of 814 controls and 823 cases. Validation of the six most strongly associated SNPs was performed in an independent collection of 2265 MS patients and 2600 healthy controls. We identified association of haplotypes composed of two non-synonymous SNPs [rs11230563 (R225W) and rs2074225 (A257V)] in the 2nd SRCR domain with susceptibility to MS (Pmax(T) permutation=161024). The effect of these haplotypes on CD6 surface expression and cytokine secretion was also tested. The analysis showed significantly different CD6 expression patterns in the distinct cell subsets, i.e. – CD4+ naı¨ve cells, P = 0.0001; CD8+ naı¨ve cells, P,0.0001; CD4+ and CD8+ central memory cells, P = 0.01 and 0.05, respectively; and natural killer T (NKT) cells, P = 0.02; with the protective haplotype (RA) showing higher expression of CD6. However, no significant changes were observed in natural killer (NK) cells, effector memory and terminally differentiated effector memory T cells. Our findings reveal that this new MS-associated CD6 risk haplotype significantly modifies expression of CD6 on CD4+ and CD8+ T cells.

A Note on Risk Acceptance, Bankruptcy Avoidance and Riskiness Measures

In this work we clarify the relationships between riskiness, risk acceptance and bankruptcy avoidance. We distinguish between the restriction on the current wealth required to make a gamble acceptable to the decision maker and the restriction on the current wealth required to guarantee no bankruptcy if a gamble is accepted. We focus on the measure of riskiness proposed by Foster and Hart.

A colorectal cancer genome-wide association study in a Spanish cohort identifies two variants associated with colorectal cancer risk at 1p33 and 8p12

Background: Colorectal cancer (CRC) is a disease of complex aetiology, with much of the expected inherited risk being due to several common low risk variants. Genome-Wide Association Studies (GWAS) have identified 20 CRC risk variants. Nevertheless, these have only been able to explain part of the missing heritability. Moreover, these signals have only been inspected in populations of Northern European origin. Results: Thus, we followed the same approach in a Spanish cohort of 881 cases and 667 controls. Sixty-four variants at 24 loci were found to be associated with CRC at p-values <10-5. We therefore evaluated the 24 loci in another Spanish replication cohort (1481 cases and 1850 controls). Two of these SNPs, rs12080929 at 1p33 (P-replication=0.042; P-pooled=5.523x10(-03); OR (CI95%)=0.866(0.782-0.959)) and rs11987193 at 8p12 (P-replication=0.039; P-pooled=6.985x10(-5); OR (CI95%)=0.786(0.705-0.878)) were replicated in the second Phase, although they did not reach genome-wide statistical significance. Conclusions: We have performed the first CRC GWAS in a Southern European population and by these means we were able to identify two new susceptibility variants at 1p33 and 8p12 loci. These two SNPs are located near the SLC5A9 and DUSP4 loci, respectively, which could be good functional candidates for the association signals. We therefore believe that these two markers constitute good candidates for CRC susceptibility loci and should be further evaluated in other larger datasets. Moreover, we highlight that were these two SNPs true susceptibility variants, they would constitute a decrease in the CRC missing heritability fraction.

Association between dietary phylloquinone intake and peripheral metabolic risk markers related to insulin resistance and diabetes in elderly subjects at high cardiovascular risk

Background: Vitamin K has been related to glucose metabolism, insulin sensitivity and diabetes. Because inflammation underlies all these metabolic conditions, it is plausible that the potential role of vitamin K in glucose metabolism occurs through the modulation of cytokines and related molecules. The purpose of the study was to assess the associations between dietary intake of vitamin K and peripheral adipokines and other metabolic risk markers related to insulin resistance and type 2 diabetes mellitus. Methods: Cross-sectional and longitudinal assessments of these associations in 510 elderly participants recruited in the PREDIMED centers of Reus and Barcelona (Spain). We determined 1-year changes in dietary phylloquinone intake estimated by food frequency questionnaires, serum inflammatory cytokines and other metabolic risk markers. Results: In the cross-sectional analysis at baseline no significant associations were found between dietary phylloquinone intake and the rest of metabolic risk markers evaluated, with exception of a negative association with plasminogen activator inhibitor-1. After 1-year of follow-up, subjects in the upper tertile of changes in dietary phylloquinone intake showed a greater reduction in ghrelin (-15.0%), glucose-dependent insulinotropic peptide (-12.9%), glucagon-like peptide-1 (-17.6%), IL-6 (-27.9%), leptin (-10.3%), TNF (-26.9%) and visfatin (-24.9%) plasma concentrations than those in the lowest tertile (all p<0.05). Conclusion: These results show that dietary phylloquinone intake is associated with an improvement of cytokines and other markers related to insulin resistance and diabetes, thus extending the potential protection by dietary phylloquinone on chronic inflammatory diseases.