Using extreme value theory to measure value-at-risk for daily electricity spot prices

The recent deregulation in electricity markets worldwide has heightened the importance of risk management in energy markets. Assessing Value-at-Risk (VaR) in electricity markets is arguably more difficult than in traditional financial markets because the distinctive features of the former result in a highly unusual distribution of returns-electricity returns are highly volatile, display seasonalities in both their mean and volatility, exhibit leverage effects and clustering in volatility, and feature extreme levels of skewness and kurtosis. With electricity applications in mind, this paper proposes a model that accommodates autoregression and weekly seasonals in both the conditional mean and conditional volatility of returns, as well as leverage effects via an EGARCH specification. In addition, extreme value theory (EVT) is adopted to explicitly model the tails of the return distribution. Compared to a number of other parametric models and simple historical simulation based approaches, the proposed EVT-based model performs well in forecasting out-of-sample VaR. In addition, statistical tests show that the proposed model provides appropriate interval coverage in both unconditional and, more importantly, conditional contexts. Overall, the results are encouraging in suggesting that the proposed EVT-based model is a useful technique in forecasting VaR in electricity markets. (c) 2005 International Institute of Forecasters. Published by Elsevier B.V. All rights reserved.

A clinical and echocardiographic score for assigning risk of major events after dobutamine echocardiograms

OBJECTIVES We sought to develop and validate a risk score combining both clinical and dobutamine echocardiographic (DbE) features in 4,890 patients who underwent DbE at three expert laboratories and were followed for death or myocardial infarction for up to five years. BACKGROUND In contrast to exercise scores, no score exists to combine clinical, stress, and echocardiographic findings with DbE. METHODS Dobutamine echocardiography was performed for evaluation of known or suspected coronary artery disease in 3,156 patients at two sites in the U.S. After exclusion of patients with incomplete follow-up, 1,456 DbEs were randomly selected to develop a multivariate model for prediction of events. After simplification of each model for clinical use, the models were internally validated in the remaining DbE patients in the same series and externally validated in 1,733 patients in an independent series. RESULTS The following score was derived from regression models in the modeling group (160 events): DbE risk = (age (.) 0.02) + (heart failure + rate-pressure product <15,000) (.) 0.4 + (ischemia + scar) (.) 0.6. The presence of each variable was scored as 1 and its absence scored as 0, except for age (continuous variable). Using cutoff values of 1.2 and 2.6, patients were classified into groups with five-year event-free survivals >95%, 75% to 95%, and <75%. Application of the score in the internal validation group (265 events) gave equivalent results, as did its application in the external validation group (494 events, C index = 0.72). CONCLUSIONS A risk score based on clinical and echocardiographic data may be used to quantify the risk of events in patients undergoing DbE. (C) 2004 by the American College of Cardiology Foundation.

Risk exposures and international diversification: Evidence from iShares

We examine the newly developed international diversification instruments–iShares traded on the American Stock Exchange. Given the fact that iShares can be created and redeemed at will, the daily price of an iShare is expected to be equal to the daily portfolio value of the underlying assets in the home-country market. Therefore, theoretically, iShare pricing should be influenced by the risk from the iShare's home-country market and not the risk from the US market, per se. We evaluate the risk exposure of iShare prices to the US market (non-fundamental effect) as well as the home-country market (the fundamental effect). We find that most iShare returns are significantly influenced by and sensitive to the US market risk. Moreover, the US market appears to be the key permanent driving factor and the home-country market is a pronounced transitory driving force for iShare prices. These findings indicate the presence of limits of international arbitrage for iShares. As a result, the international diversification benefits of iShares become questionable.

Precautionary principles: a jurisdiction-free framework for decision-making under risk

Fundamental principles of precaution are legal maxims that ask for preventive actions, perhaps as contingent interim measures while relevant information about causality and harm remains unavailable, to minimize the societal impact of potentially severe or irreversible outcomes. Such principles do not explain how to make choices or how to identify what is protective when incomplete and inconsistent scientific evidence of causation characterizes the potential hazards. Rather, they entrust lower jurisdictions, such as agencies or authorities, to make current decisions while recognizing that future information can contradict the scientific basis that supported the initial decision. After reviewing and synthesizing national and international legal aspects of precautionary principles, this paper addresses the key question: How can society manage potentially severe, irreversible or serious environmental outcomes when variability, uncertainty, and limited causal knowledge characterize their decision-making? A decision-analytic solution is outlined that focuses on risky decisions and accounts for prior states of information and scientific beliefs that can be updated as subsequent information becomes available. As a practical and established approach to causal reasoning and decision-making under risk, inherent to precautionary decision-making, these (Bayesian) methods help decision-makers and stakeholders because they formally account for probabilistic outcomes, new information, and are consistent and replicable. Rational choice of an action from among various alternatives-defined as a choice that makes preferred consequences more likely-requires accounting for costs, benefits and the change in risks associated with each candidate action. Decisions under any form of the precautionary principle reviewed must account for the contingent nature of scientific information, creating a link to the decision-analytic principle of expected value of information (VOI), to show the relevance of new information, relative to the initial ( and smaller) set of data on which the decision was based. We exemplify this seemingly simple situation using risk management of BSE. As an integral aspect of causal analysis under risk, the methods developed in this paper permit the addition of non-linear, hormetic dose-response models to the current set of regulatory defaults such as the linear, non-threshold models. This increase in the number of defaults is an important improvement because most of the variants of the precautionary principle require cost-benefit balancing. Specifically, increasing the set of causal defaults accounts for beneficial effects at very low doses. We also show and conclude that quantitative risk assessment dominates qualitative risk assessment, supporting the extension of the set of default causal models.

Electronic commerce investments, the resource-based view of the firm, and firm market value

Firms have embraced electronic commerce as a means of doing business, either because they see it as a way to improve efficiency, grow market share, expand into new markets, or because they view it as essential for survival. Recent research in the United States provides some evidence that the market does value investments in electronic commerce. Following research that suggests that, in certain circumstances, the market values noninnovative investments as well as innovative investments in new products, we partition electronic commerce investment project announcements into innovative and noninnovative to determine whether there are excess returns associated with these types of announcements. Apart from our overall results being consistent with the United States findings that the market values investments in electronic commerce projects, we also find that noninnovative investments are perceived as more valuable to the firm than innovative investments. On average, the market expects innovative investments to earn a return commensurate with their risk. We conclude that innovative electronic commerce projects are most likely seen by the capital market as easily replicable, and consequently have little, if any, competitive advantage period. On the other hand, we conclude from the noninnovative investment results that these types of investments are seen as being compatible with a firm's assets-in-place, in particular, its information technology capabilities, a view consistent with the resource-based view of the firm.

Impact of gender on risk stratification by exercise and dobutamine stress echocardiography: long-term mortality in 4234 women and 6898 men

Aims Prior research is limited with regard to the diagnostic and prognostic accuracy of commonplace cardiac imaging modalities in women. The aim of this study was to examine 5-year mortality in 4234 women and 6898 men undergoing exercise or dobutamine stress echocardiography at three hospitals. Methods and results Univariable and multivariable Cox proportional hazards models were used to estimate time to cardiac death in this multi-centre, observational registry. Of the 11 132 patients, women had a greater frequency of cardiac risk factors (P < 0.0001). However, men more often had a history of coronary disease including a greater frequency of echocardiographic wall motion abnormalities (P < 0.0001). During 5 years of follow-up, 103 women and 226 men died from ischaernic heart disease (P < 0.0001). Echocardiographic estimates of left ventricular function (P < 0.0001) and the extent of ischaernic watt motion abnormalities (P < 0.0001) were highly predictive of cardiac death. Risk-adjusted 5-year survival was 99.4, 97.6, and 95% for exercising women with no, single, and multi-vessel ischaemia (P < 0.0001). For women undergoing dobutamine stress, 5-year survival was 95, 89, and 86.6% for those with 0, 1, and 2-3 vessel ischaemia (P < 0.0001). Exercising men had a 2.0-fold higher risk at every level of worsening ischaemia (P < 0.0001). Significantly worsening cardiac survival was noted for the 1568 men undergoing dobutamine stress echocardiography (P < 0.0001); no ischaemia was associated with 92% 5-year survival as compared with death rates of &GE; 16% for men with ischaemia on dobutamine stress echocardiography (P < 0.0001). Conclusion Echocardiographic measures of inducible wall motion abnormalities and global and regional left ventricutar function are highly predictive of long-term outcome for women and men alike.

The prognostic value of a nomogram for exercise capacity in women

BACKGROUND: Recent studies have demonstrated that exercise capacity is an independent predictor of mortality in women. Normative values of exercise capacity for age in women have not been well established. Our objectives were to construct a nomogram to permit determination of predicted exercise capacity for age in women and to assess the predictive value of the nomogram with respect to survival. METHODS: A total of 5721 asymptomatic women underwent a symptom-limited, maximal stress test. Exercise capacity was measured in metabolic equivalents (MET). Linear regression was used to estimate the mean MET achieved for age. A nomogram was established to allow the percentage of predicted exercise capacity to be estimated on the basis of age and the exercise capacity achieved. The nomogram was then used to determine the percentage of predicted exercise capacity for both the original cohort and a referral population of 4471 women with cardiovascular symptoms who underwent a symptom-limited stress test. Survival data were obtained for both cohorts, and Cox survival analysis was used to estimate the rates of death from any cause and from cardiac causes in each group. RESULTS: The linear regression equation for predicted exercise capacity (in MET) on the basis of age in the cohort of asymptomatic women was as follows: predicted MET = 14.7 - (0.13 x age). The risk of death among asymptomatic women whose exercise capacity was less than 85 percent of the predicted value for age was twice that among women whose exercise capacity was at least 85 percent of the age-predicted value (P<0.001). Results were similar in the cohort of symptomatic women. CONCLUSIONS: We have established a nomogram for predicted exercise capacity on the basis of age that is predictive of survival among both asymptomatic and symptomatic women. These findings could be incorporated into the interpretation of exercise stress tests, providing additional prognostic information for risk stratification.

Carotid artery intimal medial thickness, brachial artery flow-mediated vasodilation and cardiovascular risk factors in diabetic and non-diabetic indigenous Australians

Background: Indigenous Australians are at high risk for cardiovascular disease and type 2 diabetes. Carotid artery intimal medial thickness (CIMT) and brachial artery flow-mediated vasodilation (FMD) are ultrasound imaging based surrogate markers of cardiovascular risk. This study examines the relative contributions of traditional cardiovascular risk factors on CIMT and FMD in adult Indigenous Australians with and without type 2 diabetes mellitus. Method: One hundred and nineteen Indigenous Australians were recruited. Physical and biochemical markers of cardiovascular risk, together with CIMT and FMD were meausred for all subjects. Results: Fifty-three Indigenous Australians subjects (45%) had type 2 diabetes mellitus. There was a significantly greater mean CIMT in diabetic versus non-diabetic subjects (p = 0.049). In the non-diabetic group with non-parametric analyses, there were significant correlations between CIMT and: age (r = 0.64, p < 0.001), systolic blood pressure (r = 0.47, p < 0.001) and non-smokers (r = -0.30, p = 0.018). In the diabetic group, non-parametric analysis showed correlations between CIMT, age (r = 0.36, p = 0.009) and duration of diabetes (r = 0.30, p = 0.035) only. Adjusting forage, sex, smoking and history of cardiovascular disease, Hb(A1c) became the sole significant correlate of CIMT (r = 0.35,p = 0.01) in the diabetic group. In non-parametric analysis, age was the sole significant correlate of FMD (r = -0.31,p = 0.013), and only in non-diabetic subjects. Linear regression analysis showed significant associations between CIMT and age (t = 4.6,p < 0.001), systolic blood pressure (t = 2.6, p = 0.010) and Hb(A1c) (t = 2.6, p = 0.012), smoking (t = 2.1, p = 0.04) and fasting LDL-cholesterol (t = 2.1, p = 0.04). There were no significant associations between FMD and examined cardiovascular risk factors with linear regression analysis Conclusions: CIMT appears to be a useful surrogate marker of cardiovascular risk in this sample of Indigenous Australian subjects, correlating better than FMD with established cardiovascular risk factors. A lifestyle intervention programme may alleviate the burden of cardiovascular disease in Indigenous Australians by reducing central obesity, lowering blood pressure, correcting dyslipidaemia and improving glycaemic control. CIMT may prove to be a useful tool to assess efficacy of such an intervention programme. (c) 2004 Elsevier Ireland Ltd. All rights reserved.

Re-admission to intensive care: Identification of risk factors

Background and Purpose. The re-admission of patients to intensive care is associated with increased morbidity, mortality, loss of morale for patients and family, and increased health costs. The aim of the present study was to identify factors which place patients at a higher risk of re-admission to intensive care. Method. A prospective study of patients who were re-admitted to a 22-bed tertiary level intensive care facility within a 12-month period. Data were kept on every patient re-admitted to intensive care, including standard demographic data, initial admission diagnosis, co-morbidities, re-admission diagnosis, mobility on discharge, secretions, airway, chest X-ray, PaCO2, PaO2, PaO2/FiO2and time of discharge. Subjects included 74 patients who had been re-admitted to intensive care in a 12-month period and a comparison group of patients who were not re-admitted to intensive care. A cross-tabs procedure was initially used to estimate maximum likelihood. Significant factors with an value of 65 years (p

Relationship between franking credits and the market risk premium

In a dividend imputation tax system, equity investors have three potential sources of return: dividends, capital gains and franking (tax) credits. However, the standard procedures for estimating the market risk premium (MRP) for use in the capital asset pricing model, ignore the value of franking credits. Officer (1994) notes that if franking credits do affect the corporate cost of capital, their value must be added to the standard estimates of MRP. In the present paper, we explicitly derive the relationship between the value of franking credits (gamma) and the MRP. We show that the standard parameter estimates that have been adopted in practice (especially by Australian regulators) violate this deterministic mathematical relationship. We also show how information on dividend yields and effective tax rates bounds the values that can be reasonably used for gamma and the MRP. We make recommendations for how estimates of the MRP should be adjusted to reflect the value of franking credits in an internally consistent manner.

Effect of conditional release from hospitalization on mortality risk

Objectives: This study considered the protective value provided by conditional release. It assessed the contribution of conditional release to mortality risk among patients with mental disorders severe enough to require psychiatric hospitalization during a mental health treatment span of 13.5 years in Victoria, Australia. Methods: Death records were obtained from the Australian National Death Index for a sample of 24,973 Victorian Psychiatric Case Register patients with a history of psychiatric hospitalizations: 8,879 had experienced at least one conditional release during community care intervals and 16,094 had not. Risk of death was assessed with standardized mortality ratios of the general population of Victoria. Relative risk of death among patients with and without past experience of conditional release was computed with risk and odds ratios. The contribution of conditional release to mortality, taking into account use of community care services, age, gender, inpatient experience, and diagnosis, as well as other controls, was assessed with logistic regression. Results: Patients who had been hospitalized showed higher mortality risk than the general population. Sixteen percent ( 4,034) died. Patients exposed to conditional release, however, had a 14 percent reduction in probability of noninjury-related death and a 24 percent reduction per day on orders in the probability of death from injury compared with those not offered such oversight throughout their mental health treatment, all other factors taken into account. Conclusions: Conditional release can offer protective oversight for those considered dangerous to self or others and appears to reduce mortality risk among those with disorders severe enough to require psychiatric hospitalization.

Is modern medicine at risk of losing the plot?

Contemporary medicine has much to its credit, but has created an insatiable demand for new technologies and more health services, fed by commercial promotion, professional advocacy and sociopolitical pressure. Total health expenditure at the national level is now almost 10% of gross domestic product and is expected to top 16% by 2020. After recent inquiries into the failings of its public health system, the Queensland Government has committed itself to a 25% increase in expenditure on health over the next 5 years. But will it lead to better population health, and is it sustainable? The return-on-investment curve for modern health care may be flattening out, in an environment of growing numbers of older patients with chronic illnesses, maldistribution of services and hospital overcrowding. A change in thinking is required if current medical practice is to avoid imploding when confronted with the next major economic downturn. Health policy, service funding and clinical training must focus on critical appraisal of the effectiveness of health care technologies and the structure and financing of health care systems. Practising clinicians will be obliged to provide leadership in determining value for money in the choice of health care for specific patient populations and how that care is delivered.

Development of a clinical and echocardiographic score for assigning risk of major events after exercise and dobutamine echocardiograms

The prognostic value of exercise (EXE) and dobutamine echocardiograms (DbE) has been well defined in large studies. However, while risk is determined by both clinical and echo features, no simple means of combining these data has been defined. We sought to combine these data into risk scores. Methods. At 3 expert centers, 7650 pts underwent standard EXE (n=5211) and DbE (w2439) for evaluation of known or suspected CAD and were followed for up to 10 years (mean 5-2) for major events (death or myocardial infarction). A subgroup of 2953 EXE and 1025 DbE pts was randomly selected to develop separate multivariate models for prediction of events. After simplication of each model for clinical use, models were validated in the remaining EXE and DbE pts. ResuI1s. The total number of events was 200 in the EXE and 225 in the DbE pts, of which 58 and 99 events occurred in the respective testing groups. The following regression equations gave equivalent results I” the testing and validation groups for both EXE and DbE; DbE = (Age’O.02) + (DM’l .O) + (Low RPP’0.6) + ([CHF+lschemia+Scar]‘O.7) EXE = ([DM+CHF]‘O.S) + O.S(lschemla #) + l.B(Scar#) - (METS0.19) (where each categorical variable scored 1 when present and 0 when absent, Ischemia# = 1 for l-2 VD. 6 for 3 VD; Scar# = 1 for 1-2 VD, 1.7 for 3 VD). The table summarizes the scores and equivalent outcomes for EXE and DbE. Conclusions. Risk scores based on clinical and EXE or DbE results may be used to quantify the risk of events during follow-up.