Towards an integrated script for risk and value management: insights from the dramaturgical metaphor

It is contended that the current conceptual distinction between risk management and value management is unsustainable. The origins of the two traditions are reviewed and critiqued from a postmodernist perspective. It is concluded that they differ primarily in terms of their rhetoric, rather than their substantive content. Insights into the current practice of risk and value management are provided by considering their enactment in terms of ‘performance’. The scripts for such performances are seen to be provided by the accepted methodologies which determine the language to be used and the roles to be acted out. A coherent integrated script for risk and value management can be provided by the methodology known as strategic choice, which replaces the language of ‘risk’ and ‘value’ with that of ‘uncertainty’. The benefits of adopting this alternative script are illustrated through six case studies.

An extreme value theory approach to calculating minimum capital risk requirements

This paper investigates the frequency of extreme events for three LIFFE futures contracts for the calculation of minimum capital risk requirements (MCRRs). We propose a semiparametric approach where the tails are modelled by the Generalized Pareto Distribution and smaller risks are captured by the empirical distribution function. We compare the capital requirements form this approach with those calculated from the unconditional density and from a conditional density - a GARCH(1,1) model. Our primary finding is that both in-sample and for a hold-out sample, our extreme value approach yields superior results than either of the other two models which do not explicitly model the tails of the return distribution. Since the use of these internal models will be permitted under the EC-CAD II, they could be widely adopted in the near future for determining capital adequacies. Hence, close scrutiny of competing models is required to avoid a potentially costly misallocation capital resources while at the same time ensuring the safety of the financial system.

Adding value to ecological risk assessment with population modeling

Current measures used to estimate the risks of toxic chemicals are not relevant to the goals of the environmental protection process, and thus ecological risk assessment (ERA) is not used as extensively as it should be as a basis for cost-effective management of environmental resources. Appropriate population models can provide a powerful basis for expressing ecological risks that better inform the environmental management process and thus that are more likely to be used by managers. Here we provide at least five reasons why population modeling should play an important role in bridging the gap between what we measure and what we want to protect. We then describe six actions needed for its implementation into management-relevant ERA.

Assessment of fracture risk : value of random population-based samples - the Geelong Osteoporosis Study

Fracture risk is determined by bone mineral density (BMD). The T-score, a measure of fracture risk, is the position of an individual's BMD in relation to a reference range. The aim of this study was to determine the magnitude of change in the T-score when different sampling techniques were used to produce the reference range. Reference ranges were derived from three samples, drawn from the same region: (1) an age-stratified population-based random sample, (2) unselected volunteers, and (3) a selected healthy subset of the population-based sample with no diseases or drugs known to affect bone. T-scores were calculated using the three reference ranges for a cohort of women who had sustained a fracture and as a group had a low mean BMD (ages 35-72 yr; n = 484). For most comparisons, the T-scores for the fracture cohort were more negative using the population reference range. The difference in T-scores reached 1.0 SD. The proportion of the fracture cohort classified as having osteoporosis at the spine was 26, 14, and 23% when the population, volunteer, and healthy reference ranges were applied, respectively. The use of inappropriate reference ranges results in substantial changes to T-scores and may lead to inappropriate management.

Cash flow and discount rate risk decomposition and ICAPM for the US and brazilian stock markets

Esse trabalho é uma aplicação do modelo intertemporal de apreçamento de ativos desenvolvido por Campbell (1993) e Campbell e Vuolteenaho (2004) para as carteiras de Fama-French 2x3 brasileiras no period de janeiro de 2003 a abril de 2012 e para as carteiras de Fama-French 5x5 americanas em diferentes períodos. As varíaveis sugeridas por Campbell e Vuolteenaho (2004) para prever os excessos de retorno do mercado acionário americano no period de 1929 a 2001 mostraram-se também bons preditores de excesso de retorno para o mercado brasileiro no período recente, com exceção da inclinação da estrutura a termo das taxas de juros. Entretanto, mostramos que um aumento no small stock value spread indica maior excesso de retorno no futuro, comportamento que não é coerente com a explicação para o prêmio de valor sugerida pelo modelo intertemporal. Ainda, utilizando os resíduos do VAR preditivo para definir o risco de choques de fluxo de caixa e de choques nas taxas de desconto das carteiras de teste, verificamos que o modelo intertemporal resultante não explica adequadamente os retornos observados. Para o mercado norte-americano, concluímos que a abilidade das variáveis propostas para explicar os excessos de retorno do mercado varia no tempo. O sucesso de Campbell e Vuolteenaho (2004) em explicar o prêmio de valor para o mercado norte-americano na amostra de 1963 a 2001 é resultado da especificação do VAR na amostra completa, pois mostramos que nenhuma das varíaveis é um preditor de retorno estatisticamente significante nessa sub-amostra.

Tail risk in the hedge fund industry

The dissertation goal is to quantify the tail risk premium embedded into hedge funds' returns. Tail risk is the probability of extreme large losses. Although it is a rare event, asset pricing theory suggests that investors demand compensation for holding assets sensitive to extreme market downturns. By de nition, such events have a small likelihood to be represented in the sample, what poses a challenge to estimate the e ects of tail risk by means of traditional approaches such as VaR. The results show that it is not su cient to account for the tail risk stemming from equities markets. Active portfolio management employed by hedge funds demand a speci c measure to estimate and control tail risk. Our proposed factor lls that void inasmuch it presents explanatory power both over the time series as well as the cross-section of funds' returns.

Value of the SYNTAX score for risk assessment in the all-comers population of the randomized multicenter LEADERS (Limus Eluted from A Durable versus ERodable Stent coating) trial

OBJECTIVES: We aimed to assess the predictive value of the SYNTAX score (SXscore) for major adverse cardiac events in the all-comers population of the LEADERS (Limus Eluted from A Durable versus ERodable Stent coating) trial. BACKGROUND: The SXscore has been shown to be an effective predictor of clinical outcomes in patients with multivessel disease undergoing percutaneous coronary intervention. METHODS: The SXscore was prospectively collected in 1,397 of the 1,707 patients enrolled in the LEADERS trial (patients after surgical revascularization were excluded). Post hoc analysis was performed by stratifying clinical outcomes at 1-year follow-up, according to 1 of 3 SXscore tertiles. RESULTS: The 1,397 patients were divided into tertiles based on the SXscore in the following fashion: SXscore8 and 16 (SXhigh) (n=461). At 1-year follow-up, there was a significantly lower number of patients with major cardiac event-free survival in the highest tertile of SXscore (SXlow=92.2%, SXmid=91.1%, and SXhigh=84.6%; p<0.001). Death occurred in 1.5% of SXlow patients, 2.1% of SXmid patients, and 5.6% of SXhigh patients (hazard ratio [HR]: 1.97, 95% confidence interval [CI]: 1.29 to 3.01; p=0.002). The myocardial infarction rate tended to be higher in the SXhigh group. Target vessel revascularization was 11.3% in the SXhigh group compared with 6.3% and 7.8% in the SXlow and SXmid groups, respectively (HR: 1.38, 95% CI: 1.1 to 1.75; p=0.006). Composite of cardiac death, myocardial infarction, and clinically indicated target vessel revascularization was 7.8%, 8.9%, and 15.4% in the SXlow, SXmid, and SXhigh groups, respectively (HR: 1.47, 95% CI: 1.19 to 1.81; p<0.001). CONCLUSIONS: The SXscore, when applied to an all-comers patient population treated with drug-eluting stents, may allow prospective risk stratification of patients undergoing percutaneous coronary intervention. (LEADERS Trial Limus Eluted From A Durable Versus ERodable Stent Coating; NCT00389220).

A Bootstrap Test for the Probability of Ruin in the Compound Poisson Risk Process

In this article we propose a bootstrap test for the probability of ruin in the compound Poisson risk process. We adopt the P-value approach, which leads to a more complete assessment of the underlying risk than the probability of ruin alone. We provide second-order accurate P-values for this testing problem and consider both parametric and nonparametric estimators of the individual claim amount distribution. Simulation studies show that the suggested bootstrap P-values are very accurate and outperform their analogues based on the asymptotic normal approximation.

Prognostic value of microvascular invasion in predicting the cancer specific survival and risk of metastatic disease in renal cell carcinoma: a multicenter investigation

While microvascular invasion is an accepted risk factor in various cancers, its prognostic role in renal cell carcinoma is still unclear. Therefore, a large multicenter study examining the experience of 5 international institutions was performed to evaluate the prognostic value of microvascular invasion in the occurrence of metastases and cancer specific survival.

Value of age, creatinine, and ejection fraction (ACEF score) in assessing risk in patients undergoing percutaneous coronary interventions in the 'All-Comers' LEADERS trial

Background— The age, creatinine, and ejection fraction (ACEF) score (age/left ventricular ejection fraction+1 if creatinine >2.0 mg/dL) has been established as an effective predictor of clinical outcomes in patients undergoing elective coronary artery bypass surgery; however, its utility in “all-comer” patients undergoing percutaneous coronary intervention is yet unexplored. Methods and Results— The ACEF score was calculated for 1208 of the 1707 patients enrolled in the LEADERS trial. Post hoc analysis was performed by stratifying clinical outcomes at the 1-year follow-up according to ACEF score tertiles: ACEFlow ≤1.0225, 1.0225< ACEFmid ≤1.277, and ACEFhigh >1.277. At 1-year follow-up, there was a significantly lower number of patients with major adverse cardiac event–free survival in the highest tertile of the ACEF score (ACEFlow=92.1%, ACEFmid=89.5%, and ACEFhigh=86.1%; P=0.0218). Cardiac death was less frequent in ACEFlow than in ACEFmid and ACEFhigh (0.7% vs 2.2% vs 4.5%; hazard ratio=2.22, P=0.002) patients. Rates of myocardial infarction were significantly higher in patients with a high ACEF score (6.7% for ACEFhigh vs 5.2% for ACEFmid and 2.5% for ACEFlow; hazard ratio=1.6, P=0.006). Clinically driven target-vessel revascularization also tended to be higher in the ACEFhigh group, but the difference among the 3 groups did not reach statistical significance. The rate of composite definite, possible, and probable stent thrombosis was also higher in the ACEFhigh group (ACEFlow=1.2%, ACEFmid=3.5%, and ACEFhigh=6.2%; hazard ratio=2.04, P<0.001). Conclusions— ACEF score may be a simple way to stratify risk of events in patients treated with percutaneous coronary intervention with respect to mortality and risk of myocardial infarction.

Comparative analysis of the value of allogeneic hematopoietic stem-cell transplantation in acute myeloid leukemia with monosomal karyotype versus other cytogenetic risk categories

To determine to what extent allogeneic hematopoietic stem-cell transplantation (alloHSCT) quantitatively reduces relapse in acute myeloid leukemia with monosomal karyotype (MK-AML) compared with alternative postremission therapy and how it compares with other cytogenetic subcategories.