Modeling Dependence Structure and Forecasting Portfolio Value-at-Risk with Dynamic Copulas

We study the asymmetric and dynamic dependence between financial assets and demonstrate, from the perspective of risk management, the economic significance of dynamic copula models. First, we construct stock and currency portfolios sorted on different characteristics (ex ante beta, coskewness, cokurtosis and order flows), and find substantial evidence of dynamic evolution between the high beta (respectively, coskewness, cokurtosis and order flow) portfolios and the low beta (coskewness, cokurtosis and order flow) portfolios. Second, using three different dependence measures, we show the presence of asymmetric dependence between these characteristic-sorted portfolios. Third, we use a dynamic copula framework based on Creal et al. (2013) and Patton (2012) to forecast the portfolio Value-at-Risk of long-short (high minus low) equity and FX portfolios. We use several widely used univariate and multivariate VaR models for the purpose of comparison. Backtesting our methodology, we find that the asymmetric dynamic copula models provide more accurate forecasts, in general, and, in particular, perform much better during the recent financial crises, indicating the economic significance of incorporating dynamic and asymmetric dependence in risk management.

Modeling Dependence Structure and Forecasting Market Risk with Dynamic Asymmetric Copula

We investigate the dynamic and asymmetric dependence structure between equity portfolios from the US and UK. We demonstrate the statistical significance of dynamic asymmetric copula models in modelling and forecasting market risk. First, we construct “high-minus-low" equity portfolios sorted on beta, coskewness, and cokurtosis. We find substantial evidence of dynamic and asymmetric dependence between characteristic-sorted portfolios. Second, we consider a dynamic asymmetric copula model by combining the generalized hyperbolic skewed t copula with the generalized autoregressive score (GAS) model to capture both the multivariate non-normality and the dynamic and asymmetric dependence between equity portfolios. We demonstrate its usefulness by evaluating the forecasting performance of Value-at-Risk and Expected Shortfall for the high-minus-low portfolios. From back-testing, e find consistent and robust evidence that our dynamic asymmetric copula model provides the most accurate forecasts, indicating the importance of incorporating the dynamic and asymmetric dependence structure in risk management.

Solvency Capital estimation and Risk Measures

This paper examines why a financial entity’s solvency capital estimation might be underestimated if the total amount required is obtained directly from a risk measurement. Using Monte Carlo simulation we show that, in some instances, a common risk measure such as Value-at-Risk is not subadditive when certain dependence structures are considered. Higher risk evaluations are obtained for independence between random variables than those obtained in the case of comonotonicity. The paper stresses, therefore, the relationship between dependence structures and capital estimation.

Impact of an intervention to control risk associated with patient transfer.

QUESTION UNDER STUDY: Hospitals transferring patients retain responsibility until admission to the new health care facility. We define safe transfer conditions, based on appropriate risk assessment, and evaluate the impact of this strategy as implemented at our institution. METHODS: An algorithm defining transfer categories according to destination, equipment monitoring, and medication was developed and tested prospectively over 6 months. Conformity with algorithm criteria was assessed for every transfer and transfer category. After introduction of a transfer coordination centre with transfer nurses, the algorithm was implemented and the same survey was carried out over 1 year. RESULTS: Over the whole study period, the number of transfers increased by 40%, chiefly by ambulance from the emergency department to other hospitals and private clinics. Transfers to rehabilitation centres and nursing homes were reassigned to conventional vehicles. The percentage of patients requiring equipment during transfer, such as an intravenous line, decreased from 34% to 15%, while oxygen or i.v. drug requirement remained stable. The percentage of transfers considered below theoretical safety decreased from 6% to 4%, while 20% of transfers were considered safer than necessary. A substantial number of planned transfers could be "downgraded" by mutual agreement to a lower degree of supervision, and the system was stable on a short-term basis. CONCLUSION: A coordinated transfer system based on an algorithm determining transfer categories, developed on the basis of simple but valid medical and nursing criteria, reduced unnecessary ambulance transfers and treatment during transfer, and increased adequate supervision.

Maps as risk mitigation tools. Adaptation of the Swiss hazard assessment and mapping methodology to a Moroccan site: Beni Mellal

Dans le contexte climatique actuel, les régions méditerranéennes connaissent une intensification des phénomènes hydrométéorologiques extrêmes. Au Maroc, le risque lié aux inondations est devenu problématique, les communautés étant vulnérables aux événements extrêmes. En effet, le développement économique et urbain rapide et mal maîtrisé augmente l'exposition aux phénomènes extrêmes. La Direction du Développement et de la Coopération suisse (DDC) s'implique activement dans la réduction des risques naturels au Maroc. La cartographie des dangers et son intégration dans l'aménagement du territoire représentent une méthode efficace afin de réduire la vulnérabilité spatiale. Ainsi, la DDC a mandaté ce projet d'adaptation de la méthode suisse de cartographie des dangers à un cas d'étude marocain (la ville de Beni Mellal, région de Tadla-Azilal, Maroc). La méthode suisse a été adaptée aux contraintes spécifiques du terrain (environnement semi-aride, morphologie de piémont) et au contexte de transfert de connaissances (caractéristiques socio-économiques et pratiques). Une carte des phénomènes d'inondations a été produite. Elle contient les témoins morphologiques et les éléments anthropiques pertinents pour le développement et l'aggravation des inondations. La modélisation de la relation pluie-débit pour des événements de référence, et le routage des hydrogrammes de crue ainsi obtenus ont permis d'estimer quantitativement l'aléa inondation. Des données obtenues sur le terrain (estimations de débit, extension de crues connues) ont permis de vérifier les résultats des modèles. Des cartes d'intensité et de probabilité ont été obtenues. Enfin, une carte indicative du danger d'inondation a été produite sur la base de la matrice suisse du danger qui croise l'intensité et la probabilité d'occurrence d'un événement pour obtenir des degrés de danger assignables au territoire étudié. En vue de l'implémentation des cartes de danger dans les documents de l'aménagement du territoire, nous nous intéressons au fonctionnement actuel de la gestion institutionnelle du risque à Beni Mellal, en étudiant le degré d'intégration de la gestion et la manière dont les connaissances sur les risques influencent le processus de gestion. L'analyse montre que la gestion est marquée par une logique de gestion hiérarchique et la priorité des mesures de protection par rapport aux mesures passives d'aménagement du territoire. Les connaissances sur le risque restent sectorielles, souvent déconnectées. L'innovation dans le domaine de la gestion du risque résulte de collaborations horizontales entre les acteurs ou avec des sources de connaissances externes (par exemple les universités). Des recommandations méthodologiques et institutionnelles issues de cette étude ont été adressées aux gestionnaires en vue de l'implémentation des cartes de danger. Plus que des outils de réduction du risque, les cartes de danger aident à transmettre des connaissances vers le public et contribuent ainsi à établir une culture du risque. - Severe rainfall events are thought to be occurring more frequently in semi-arid areas. In Morocco, flood hazard has become an important topic, notably as rapid economic development and high urbanization rates have increased the exposure of people and assets in hazard-prone areas. The Swiss Agency for Development and Cooperation (SADC) is active in natural hazard mitigation in Morocco. As hazard mapping for urban planning is thought to be a sound tool for vulnerability reduction, the SADC has financed a project aimed at adapting the Swiss approach for hazard assessment and mapping to the case of Morocco. In a knowledge transfer context, the Swiss method was adapted to the semi-arid environment, the specific piedmont morphology and to socio-economic constraints particular to the study site. Following the Swiss guidelines, a hydro-geomorphological map was established, containing all geomorphic elements related to known past floods. Next, rainfall / runoff modeling for reference events and hydraulic routing of the obtained hydrographs were carried out in order to assess hazard quantitatively. Field-collected discharge estimations and flood extent for known floods were used to verify the model results. Flood hazard intensity and probability maps were obtained. Finally, an indicative danger map as defined within the Swiss hazard assessment terminology was calculated using the Swiss hazard matrix that convolves flood intensity with its recurrence probability in order to assign flood danger degrees to the concerned territory. Danger maps become effective, as risk mitigation tools, when implemented in urban planning. We focus on how local authorities are involved in the risk management process and how knowledge about risk impacts the management. An institutional vulnerability "map" was established based on individual interviews held with the main institutional actors in flood management. Results show that flood hazard management is defined by uneven actions and relationships, it is based on top-down decision-making patterns, and focus is maintained on active mitigation measures. The institutional actors embody sectorial, often disconnected risk knowledge pools, whose relationships are dictated by the institutional hierarchy. Results show that innovation in the risk management process emerges when actors collaborate despite the established hierarchy or when they open to outer knowledge pools (e.g. the academia). Several methodological and institutional recommendations were addressed to risk management stakeholders in view of potential map implementation to planning. Hazard assessment and mapping is essential to an integrated risk management approach: more than a mitigation tool, danger maps represent tools that allow communicating on hazards and establishing a risk culture.

Critical review of cancer risk associated with angiotensin receptor blocker therapy.

The role of drugs in new cancer occurrence and cancer-related death is a major concern. Recently, a meta-analysis raised the possibility that angiotensin receptor blockers (ARBs) might have an adverse effect on patients. This generated a significant debate until the publication of two further meta-analyses, neither of which demonstrated an increased risk of new cancer occurrence or cancer-related death with the use of ARBs in patients with hypertension, heart failure, and/or nephropathy. This illustrates that the results of meta-analyses should be interpreted cautiously and critically as bias, such as selection bias, might lead to erroneous conclusions. Overall, the bulk of evidence today indicates that ARBs are not associated with increased cancer risk.

Stochastic optimal bid to electricity markets with environmental risk constraints

There are many factors that influence the day-ahead market bidding strategies of a generation company (GenCo) in the current energy market framework. Environmental policy issues have become more and more important for fossil-fuelled power plants and they have to be considered in their management, giving rise to emission limitations. This work allows to investigate the influence of both the allowances and emission reduction plan, and the incorporation of the derivatives medium-term commitments in the optimal generation bidding strategy to the day-ahead electricity market. Two different technologies have been considered: the coal thermal units, high-emission technology, and the combined cycle gas turbine units, low-emission technology. The Iberian Electricity Market and the Spanish National Emissions and Allocation Plans are the framework to deal with the environmental issues in the day-ahead market bidding strategies. To address emission limitations, some of the standard risk management methodologies developed for financial markets, such as Value-at-Risk (VaR) and Conditional Value-at-Risk (CVaR), have been extended. This study offers to electricity generation utilities a mathematical model to determinate the individual optimal generation bid to the wholesale electricity market, for each one of their generation units that maximizes the long-run profits of the utility abiding by the Iberian Electricity Market rules, the environmental restrictions set by the EU Emission Trading Scheme, as well as the restrictions set by the Spanish National Emissions Reduction Plan. The economic implications for a GenCo of including the environmental restrictions of these National Plans are analyzed and the most remarkable results will be presented.

Social perceptions of floods and flood management in a Mediterranean area (Costa Brava, Spain)

Taking as an example three study cases in the Costa Brava area, this paper examines the social perceptionof floods through surveys, interviews and Focus Group sessions. Perception is then related to vulnerability, flood management, and citizen’s preferences regarding alternatives to curb flood losses in the future. The study concludes that flood awareness and the willingness to take actions regarding this hazard are clearly related to the degree of social involvement with the affairs of the local community. Furthermore, participatory settings such as Focus Group sessions appear to enable a better environment for assessing and implementing flood management options that attempt to modify human activities rather than modify natural processes as has been frequently the case in the past

Disaster Risk, Livelihoods and Natural Barriers, Strengthening Decision-Making Tools for Disaster Risk Reduction: A case study from northern Pakistan

The goal of this interdisciplinary study is to better understand the land use factors that increase vulnerability of mountain areas in northern Pakistan. The study will identify and analyse the damages and losses caused by the October 2005 earthquake in two areas of the same valley: one "low-risk" watershed with sound natural resources management, the other, "high-risk" in an ecologically degraded watershed. Secondly, the study will examine natural and man-made causes of secondary hazards in the study area, especially landslides; and third it will evaluate the cost of the earthquake damage in the study areas on the livelihoods of local communities and the sub-regional economy. There are few interdisciplinary studies to have correlated community land use practices, resources management, and disaster risk reduction in high-risk mountain areas. By better understanding these linkages, development- humanitarian- and donor agencies focused on disaster reduction can improve their risk reduction programs for mountainous regions.

Les coûts des dommages éléments naturels aux bâtiments et l'influence des facteurs du risque dans un contexte d'assurance immobilière : analyse de cas des innondations et de la grêle en Suisse

In Switzerland, the annual cost of damage by natural elements has been increasing for several years despite the introduction of protective measures. Mainly induced by material destruction building insurance companies have to pay the majority of this cost. In many European countries, governments and insurance companies consider prevention strategies to reduce vulnerability. In Switzerland, since 2004, the cost of damage due to natural hazards has surpassed the cost of damage due to fire; a traditional activity of the Cantonal Insurance company (EGA). Therefore, the strategy for efficient fire prevention incorporates a reduction of the vulnerability of buildings. The thesis seeks to illustrate the relevance of such an approach when applied to the damage caused by natural hazards. It examines the role of insurance place and its involvement in targeted prevention of natural disasters. Integrated risk management involves a faultless comprehension of all risk parameters The first part of the thesis is devoted to the theoretical development of the key concepts that influence risk management, such as: hazard, vulnerability, exposure or damage. The literature on this subject, very prolific in recent years, was taken into account and put in perspective in the context of this study. Among the risk parameters, it is shown in the thesis that vulnerability is a factor that we can influence efficiently in order to limit the cost of damage to buildings. This is confirmed through the development of an analysis method. This method has led to the development of a tool to assess damage to buildings by flooding. The tool, designed for the property insurer or owner, proposes several steps, namely: - Vulnerability and damage potential assessment; - Proposals for remedial measures and risk reduction from an analysis of the costs of a potential flood; - Adaptation of a global strategy in high-risk areas based on the elements at risk. The final part of the thesis is devoted to the study of a hail event in order to provide a better understanding of damage to buildings. For this, two samples from the available claims data were selected and analysed in the study. The results allow the identification of new trends A second objective of the study was to develop a hail model based on the available data The model simulates a random distribution of intensities and coupled with a risk model, proposes a simulation of damage costs for the determined study area. Le coût annuel des dommages provoqués par les éléments naturels en Suisse est conséquent et sa tendance est en augmentation depuis plusieurs années, malgré la mise en place d'ouvrages de protection et la mise en oeuvre de moyens importants. Majoritairement induit par des dégâts matériels, le coût est supporté en partie par les assurances immobilières en ce qui concerne les dommages aux bâtiments. Dans de nombreux pays européens, les gouvernements et les compagnies d'assurance se sont mis à concevoir leur stratégie de prévention en termes de réduction de la vulnérabilité. Depuis 2004, en Suisse, ce coût a dépassé celui des dommages dus à l'incendie, activité traditionnelle des établissements cantonaux d'assurance (ECA). Ce fait, aux implications stratégiques nombreuses dans le domaine public de la gestion des risques, résulte en particulier d'une politique de prévention des incendies menée efficacement depuis plusieurs années, notamment par le biais de la diminution de la vulnérabilité des bâtiments. La thèse, par la mise en valeur de données actuarielles ainsi que par le développement d'outils d'analyse, cherche à illustrer la pertinence d'une telle approche appliquée aux dommages induits par les phénomènes naturels. Elle s'interroge sur la place de l'assurance et son implication dans une prévention ciblée des catastrophes naturelles. La gestion intégrale des risques passe par une juste maîtrise de ses paramètres et de leur compréhension. La première partie de la thèse est ainsi consacrée au développement théorique des concepts clés ayant une influence sur la gestion des risques, comme l'aléa, la vulnérabilité, l'exposition ou le dommage. La littérature à ce sujet, très prolifique ces dernières années, a été repnse et mise en perspective dans le contexte de l'étude, à savoir l'assurance immobilière. Parmi les paramètres du risque, il est démontré dans la thèse que la vulnérabilité est un facteur sur lequel il est possible d'influer de manière efficace dans le but de limiter les coûts des dommages aux bâtiments. Ce raisonnement est confirmé dans un premier temps dans le cadre de l'élaboration d'une méthode d'analyse ayant débouché sur le développement d'un outil d'estimation des dommages aux bâtiments dus aux inondations. L'outil, destiné aux assurances immobilières, et le cas échéant aux propriétaires, offre plusieurs étapes, à savoir : - l'analyse de la vulnérabilité et le potentiel de dommages ; - des propositions de mesures de remédiation et de réduction du risque issues d'une analyse des coûts engendrés par une inondation potentielle; - l'adaptation d'une stratégie globale dans les zones à risque en fonction des éléments à risque. La dernière partie de la thèse est consacrée à l'étude d'un événement de grêle dans le but de fournir une meilleure compréhension des dommages aux bâtiments et de leur structure. Pour cela, deux échantillons ont été sélectionnés et analysés parmi les données de sinistres à disposition de l'étude. Les résultats obtenus, tant au niveau du portefeuille assuré que de l'analyse individuelle, permettent de dégager des tendances nouvelles. Un deuxième objectif de l'étude a consisté à élaborer une modélisation d'événements de grêle basée sur les données à disposition. Le modèle permet de simuler une distribution aléatoire des intensités et, couplé à un modèle d'estimation des risques, offre une simulation des coûts de dommages envisagés pour une zone d'étude déterminée. Les perspectives de ce travail permettent une meilleure focalisation du rôle de l'assurance et de ses besoins en matière de prévention.

Patient safety management from the perspective of nurses

OBJECTIVE To evaluate the actions of patient safety management developed in hospitals, from the perspective of nurses. METHOD This is a cross-sectional, descriptive study of the survey type. Participants were seven hospitals, in which seven nurse managers and 49 sector coordinator nurses (n = 56) answered the instrument prepared by the author. RESULTS The results showed that 100% of hospitals have an adverse event reporting system, 71.4% have a Risk Management Committee and 80% have discussions about the events. There is agreement that these discussions lead to favorable changes for patient safety in the surveyed institutions. The employees' fear of punishment for their faults, and the underreporting of events were the aspects of greatest weakness found. CONCLUSION The institutions should develop organizational policies focused on stimulating event notification and on the implementation of measures directed to a non-punitive organizational culture.

Interdisciplinary research for the analysis and risk assesment : the case of the municipality of Uspantan Guatemala

Short description of the proposed presentation * lees than 100 words This paper describes the interdisciplinary work done in Uspantán, Guatemala, a city vulnerable to natural hazards. We investigated local responses to landslides that happened in 2007 and 2010 and had a strong impact on the local community. We show a complete example of a systemic approach that incorporates physical, social and environmental aspects in order to understand risks. The objective of this work is to present the combination of social and geological data (mapping), and describe the methodology used for identification and assessment of risk. The article discusses both the limitations and methodological challenges encountered when conducting interdisciplinary research. Describe why it is important to present this topic at the Global Platform in less than 50 words This work shows the benefits of addressing risk in an interdisciplinary perspective, in particular how integrating social sciences can help identify new phenomena and natural hazards and assess risk. It gives a practical example of how one can integrate data from different fields. What is innovative about this presentation? * The use of mapping to combine qualitative and quantitative data. By coupling approaches, we could associate a hazard map with qualitative data gathered by interviews with the population. This map is an important document for the authorities. Indeed, it allows them to be aware of the most dangerous zones, the affected families and the places where it is most urgent to intervene.

Adverse reactions to biologic agents and their medical management.

Biologic agents have substantially advanced the treatment of immunological disorders, including chronic inflammatory and autoimmune diseases. However, these drugs are often associated with adverse events (AEs), including allergic, immunological and other unwanted reactions. AEs can affect almost any organ or system in the body and can occur immediately, within minutes to hours, or with a delay of several days or more after initiation of biologic therapy. Although some AEs are a direct consequence of the functional inhibition of biologic-agent-targeted antigens, the pathogenesis of other AEs results from a drug-induced imbalance of the immune system, intermediary factors and cofactors, a complexity that complicates their prediction. Herein, we review the AEs associated with biologic therapy most relevant to rheumatic and immunological diseases, and discuss their underlying pathogenesis. We also include our recommendations for the medical management of such AEs. Increased understanding and improved risk management of AEs induced by biologic agents will enable better use of these versatile immune-response modifiers.

Management of nanomaterials safety in research environment

Despite numerous discussions, workshops, reviews and reports about responsible development of nanotechnology, information describing health and environmental risk of engineered nanoparticles or nanomaterials is severely lacking and thus insufficient for completing rigorous risk assessment on their use. However, since preliminary scientific evaluations indicate that there are reasonable suspicions that activities involving nanomaterials might have damaging effects on human health; the precautionary principle must be applied. Public and private institutions as well as industries have the duty to adopt preventive and protective measures proportionate to the risk intensity and the desired level of protection. In this work, we present a practical, 'user-friendly' procedure for a university-wide safety and health management of nanomaterials, developed as a multi-stakeholder effort (government, accident insurance, researchers and experts for occupational safety and health). The process starts using a schematic decision tree that allows classifying the nano laboratory into three hazard classes similar to a control banding approach (from Nano 3 - highest hazard to Nano1 - lowest hazard). Classifying laboratories into risk classes would require considering actual or potential exposure to the nanomaterial as well as statistical data on health effects of exposure. Due to the fact that these data (as well as exposure limits for each individual material) are not available, risk classes could not be determined. For each hazard level we then provide a list of required risk mitigation measures (technical, organizational and personal). The target 'users' of this safety and health methodology are researchers and safety officers. They can rapidly access the precautionary hazard class of their activities and the corresponding adequate safety and health measures. We succeed in convincing scientist dealing with nano-activities that adequate safety measures and management are promoting innovation and discoveries by ensuring them a safe environment even in the case of very novel products. The proposed measures are not considered as constraints but as a support to their research. This methodology is being implemented at the Ecole Polytechnique de Lausanne in over 100 research labs dealing with nanomaterials. It is our opinion that it would be useful to other research and academia institutions as well. [Authors]

Towards a theory of the credit-risk balance sheet (II). The evolution of its structure

This article has an immediate predecessor, upon which it is based and with which readers must necessarily be familiar: Towards a Theory of the Credit-Risk Balance Sheet (Vallverdú, Somoza and Moya, 2006). The Balance Sheet is conceptualised on the basis of the duality of a credit-based transaction; it deals with its theoretical foundations, providing evidence of a causal credit-risk duality, that is, a true causal relationship; its characteristics, properties and its static and dynamic characteristics are analyzed. This article, which provides a logical continuation to the previous one, studies the evolution of the structure of the Credit-Risk Balance Sheet as a consequence of a business¿s dynamics in the credit area. Given the Credit-Risk Balance Sheet of a company at any given time, it attempts to estimate, by means of sequential analysis, its structural evolution, showing its usefulness in the management and control of credit and risk. To do this, it bases itself, with the necessary adaptations, on the by-now classic works of Palomba and Cutolo. The establishment of the corresponding transformation matrices allows one to move from an initial balance sheet structure to a final, future one, to understand its credit-risk situation trends, as well as to make possible its monitoring and control, basic elements in providing support for risk management.