How contractors price risk in bids: theory and practice

Formal and analytical models that contractors can use to assess and price project risk at the tender stage have proliferated in recent years. However, they are rarely used in practice. Introducing more models would, therefore, not necessarily help. A better understanding is needed of how contractors arrive at a bid price in practice, and how, and in what circumstances, risk apportionment actually influences pricing levels. More than 60 proposed risk models for contractors that are published in journals were examined and classified. Then exploratory interviews with five UK contractors and documentary analyses on how contractors price work generally and risk specifically were carried out to help in comparing the propositions from the literature to what contractors actually do. No comprehensive literature on the real bidding processes used in practice was found, and there is no evidence that pricing is systematic. Hence, systematic risk and pricing models for contractors may have no justifiable basis. Contractors process their bids through certain tendering gateways. They acknowledge the risk that they should price. However, the final settlement depends on a set of complex, micro-economic factors. Hence, risk accountability may be smaller than its true cost to the contractor. Risk apportionment occurs at three stages of the whole bid-pricing process. However, analytical approaches tend not to incorporate this, although they could.

Green noise or green value? Measuring the price effects of environmental certification in commercial buildings

This paper investigates the price effects of environmental certification on commercial real estate assets. It is argued that there are likely to be three main drivers of price differences between certified and non-certified buildings. First, certified buildings offer a bundle of benefits to occupiers relating to business productivity, image and occupancy costs. Second, due to these occupier benefits, certified buildings can result in higher rents and lower holding costs for investors. Third, certified buildings may require a lower risk premium. Drawing upon the CoStar database of US commercial real estate assets, hedonic regression analysis is used to measure the effect of certification on both rent and price. We first estimate the rental regression for a sample of 110 LEED and 433 Energy Star as well as several thousand benchmark buildings to compare the sample to. The results suggest that, compared to buildings in the same metropolitan region, certified buildings have a rental premium and that the more highly rated that buildings are in terms of their environmental impact, the greater the rental premium. Furthermore, based on a sample of transaction prices for 292 Energy Star and 30 LEED-certified buildings, we find price premia of 10% and 31% respectively compared to non-certified buildings in the same metropolitan area

Seasonality and the valuation of commodity options

Price movements in many commodity markets exhibit significant seasonal patterns. However, given an observed futures price, a deterministic seasonal component at the price level is not relevant for the pricing of commodity options. In contrast, this is not true for the seasonal pattern observed in the volatility of the commodity price. Analyzing an extensive sample of soybean, corn, heating oil and natural gas options, we find that seasonality in volatility is an important aspect to consider when valuing these contracts. The inclusion of an appropriate seasonality adjustment significantly reduces pricing errors in these markets and yields more improvement in valuation accuracy than increasing the number of stochastic factors.

Price discovery of credit spreads in tranquil and crisis periods

In this paper we investigate the price discovery process in single-name credit spreads obtained from bond, credit default swap (CDS), equity and equity option prices. We analyse short term price discovery by modelling daily changes in credit spreads in the four markets with a vector autoregressive model (VAR). We also look at price discovery in the long run with a vector error correction model (VECM). We find that in the short term the option market clearly leads the other markets in the sub-prime crisis (2007-2009). During the less severe sovereign debt crisis (2009-2012) and the pre-crisis period, options are still important but CDSs become more prominent. In the long run, deviations from the equilibrium relationship with the option market still lead to adjustments in the credit spreads observed or implied from other markets. However, options no longer dominate price discovery in any of the periods considered. Our findings have implications for traders, credit risk managers and financial regulators.

Evaluating the risk of non-point source pollution from biosolids: integrated modelling of nutrient losses at field and catchment scales

A semi-distributed model, INCA, has been developed to determine the fate and distribution of nutrients in terrestrial and aquatic systems. The model simulates nitrogen and phosphorus processes in soils, groundwaters and river systems and can be applied in a semi-distributed manner at a range of scales. In this study, the model has been applied at field to sub-catchment to whole catchment scale to evaluate the behaviour of biosolid-derived losses of P in agricultural systems. It is shown that process-based models such as INCA, applied at a wide range of scales, reproduce field and catchment behaviour satisfactorily. The INCA model can also be used to generate generic information for risk assessment. By adjusting three key variables: biosolid application rates, the hydrological connectivity of the catchment and the initial P-status of the soils within the model, a matrix of P loss rates can be generated to evaluate the behaviour of the model and, hence, of the catchment system. The results, which indicate the sensitivity of the catchment to flow paths, to application rates and to initial soil conditions, have been incorporated into a Nutrient Export Risk Matrix (NERM).

Impact on CVD risk of modifying milk fat to decrease intake of SFA and increase intake of cis-MUFA

Despite the acknowledged benefits of reducing SFA intake few countries within the EU meet recognised targets. Milk and dairy products represent the single largest source of dietary SFA in most countries, yet epidemiological evidence indicates that milk has cardioprotective properties such that simply reducing consumption of dairy foods to meet SFA targets may not be a sound public health approach. The present paper explores the options for replacing some of the SFA in milk fat with cis-MUFA through alteration of the diet of the dairy cow, and the evidence that such changes can improve the indicators for CHD and CVD in general for the consumer. In addition, the outcome of such changes on risk factors for CHD and CVD at the population level is examined in the light of a modelling exercise involving data for eleven EU member states. Given the current and projected costs of health care, the results indicate that urgent consideration should be given to such a strategy.

Impact on CVD risk of modifying milk fat to decrease intake of SFA and increase intake of cis-MUFA

Despite the acknowledged benefits of reducing SFA intake few countries within the EU meet recognised targets. Milk and dairy products represent the single largest source of dietary SFA in most countries, yet epidemiological evidence indicates that milk has cardioprotective properties such that simply reducing consumption of dairy foods to meet SFA targets may not be a sound public health approach. The present paper explores the options for replacing some of the SFA in milk fat with cis-MUFA through alteration of the diet of the dairy cow, and the evidence that such changes can improve the indicators for CHD and CVD in general for the consumer. In addition, the outcome of such changes on risk factors for CHD and CVD at the population level is examined in the light of a modelling exercise involving data for eleven EU member states. Given the current and projected costs of health care, the results indicate that urgent consideration should be given to such a strategy.

Risk of foot and mouth disease associated with proximity in space and time to infected premises and the implications for control policy during the 2001 epidemic in Cumbria

An analysis was made that calculated the risk of disease for premises in the most heavily affected parts of the county of Cumbria during the foot-and-mouth disease epidemic in the UK in 2001. In over half the cases the occurrence of the disease was not directly attributable to a recently infected premises being located within 1.5 km. Premises more than 1.5 km from recently infected premises faced sufficiently high infection risks that culling within a 1.5 km radius of the infected premises alone could not have prevented the progress of the epidemic. A comparison of the final outcome in two areas of the county, south Penrith and north Cumbria, indicated that focusing on controlling the potential spread of the disease over short distances by culling premises contiguous to infected premises, while the disease continued to spread over longer distances, may have resulted in excessive numbers of premises being culled. Even though the contiguous cull in south Penrith appeared to have resulted in a smaller proportion of premises becoming infected, the overall proportion of premises culled was considerably greater than in north Cumbria, where, because of staff and resource limitations, a smaller proportion of premises contiguous to infected premises was culled

Activity patterns of urban red foxes (Vulpes vulpes) reduce the risk of traffic-induced mortality

Traffic collisions can be a major source of mortality in wild populations, and animals may be expected to exhibit behavioral mechanisms that reduce the risk associated with crossing roads. Animals living in urban areas in particular have to negotiate very dense road networks, often with high levels of traffic flow. We examined traffic-related mortality of red foxes (Vulpes vulpes) in the city of Bristol, UK, and the extent to which roads affected fox activity by comparing real and randomly generated patterns of movement. There were significant seasonal differences in the number of traffic-related fox deaths for different age and sex classes; peaks were associated with periods when individuals were likely to be moving through unfamiliar terrain and would have had to cross major roads. Mortality rates per unit road length increased with road magnitude. The number of roads crossed by foxes and the rate at which roads were crossed per hour of activity increased after midnight when traffic flow was lower. Adults and juveniles crossed 17% and 30% fewer roads, respectively, than expected from randomly generated movement. This highly mobile species appeared to reduce the mortality risk of minor category roads by changing its activity patterns, but it remained vulnerable to the effects of larger roads with higher traffic flows during periods associated with extraterritorial movements.

Increased apoptosis in first trimester extravillous trophoblasts from pregnancies at higher risk of developing preeclampsia

Preeclampsia complicates 5 to 10% of pregnancies and is a leading cause of maternal and fetal mortality and morbidity. Although the cause is unknown, inadequate invasion and remodeling of maternal uterine arteries by extravillous trophoblasts (EVTs) in the first trimester is a common feature. Uterine spiral artery resistance as detected by Doppler ultrasound is commonly used in the second trimester to identify pregnancies destined to develop preeclampsia. Correlation between high uterine resistance and the failure of trophoblast invasion has been reported as early as 12 weeks. However, the reason for this failure has not been established. Understanding the processes involved would significantly improve our diagnostic potential. In this study, we correlated increased first trimester uterine artery resistance with a biological abnormality in trophoblast function. EVTs derived from high-resistance pregnancies were more sensitive to apoptotic stimuli than those from normal-resistance pregnancies. Survival of EVTs from high-resistance pregnancies could be increased by nitric oxide, whereas inhibition of nitric oxide in cells from normal-resistance pregnancies increased apoptotic sensitivity. This predates the onset of symptoms by several weeks and provides evidence for a mechanism responsible for the incomplete uterine vessel remodeling and the differences in artery resistance between preeclamptic and normal pregnancies.

Radon in homes and risk of lung cancer: collaborative analysis of individual data from 13 European case-control studies

Objective: To determine the risk of lung cancer associated with exposure at home to the radioactive disintegration products of naturally Occurring radon gas. Design: Collaborative analysis of individual data from 13 case-control studies of residential radon and lung cancer. Setting Nine European countries. Subjects 7148 cases Of lung cancer and 14 208 controls. Main outcome measures: Relative risks of lung cancer and radon gas concentrations in homes inhabited during the previous 5-34 years measured in becquerels (radon disintegrations per second) per cubic incite (Bq/m(3)) Of household air. Results: The mean measured radon concentration in homes of people in tire control group was 97 Bq/m(3), with 11% measuring > 200 and 4% measuring > 400 Bq/m(3). For cases of lung cancer the mean concentration was 104 Bq/m(3). The risk of lung cancer increased by 8.4% (95% confidence interval 3.0% to 15.8%) per 100 Bq/m(3) increase in measured radon (P = 0.0007). This corresponds to an increase of 16% (5% to 31%) per 100 Bq/m(3) increase in usual radon-that is, after correction for the dilution caused by random uncertainties in measuring radon concentrations. The dose-response relation seemed to be linear with no threshold and remained significant (P=0.04) in analyses limited to individuals from homes with measured radon < 200 Bq/m(3). The proportionate excess risk did not differ significantly with study, age, sex, or smoking. In the absence of other causes of death, the absolute risks of lung cancer by age 75 years at usual radon concentrations of 0, 100, and 400 Bq/m(3) would be about 0.4%, 0.5%, and 0.7%, respectively, for lifelong non-smokers, and about 25 times greater (10%, 12%, and 16%) for cigarette smokers. Conclusions: Collectively, though not separately, these studies show appreciable hazards from residential radon, particularly for smokers and recent ex-smokers, and indicate that it is responsible for about 2% of all deaths from cancer in Europe.

Repeated challenge with prion disease: The risk of infection and impact on incubation period

Natural exposure to prion disease is likely to occur throughout successive challenges, yet most experiments focus on single large doses of infectious material. We analyze the results from an experiment in which rodents were exposed to multiple doses of feed contaminated with the scrapie agent. We formally define hypotheses for how the doses combine in terms of statistical models. The competing hypotheses are that only the total dose of infectivity is important (cumulative model), doses act independently, or a general alternative that interaction between successive doses occurs (to raise or lower the risk of infection). We provide sample size calculations to distinguish these hypotheses. In the experiment, a fixed total dose has a significantly reduced probability of causing infection if the material is presented as multiple challenges, and as the time between challenges lengthens. Incubation periods are shorter and less variable if all material is consumed on one occasion. We show that the probability of infection is inconsistent with the hypothesis that each dose acts as a cumulative or independent challenge. The incubation periods are inconsistent with the independence hypothesis. Thus, although a trend exists for the risk of infection with prion disease to increase with repeated doses, it does so to a lesser degree than is expected if challenges combine independently or in a cumulative manner.