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.

Prospective validation of the Pulmonary Embolism Severity Index. A clinical prognostic model for pulmonary embolism

Practice guidelines recommend outpatient care for selected patients with non-massive pulmonary embolism (PE), but fail to specify how these low-risk patients should be identified. Using data from U.S. patients, we previously derived the Pulmonary Embolism Severity Index (PESI), a prediction rule that risk stratifies patients with PE. We sought to validate the PESI in a European patient cohort. We prospectively validated the PESI in patients with PE diagnosed at six emergency departments in three European countries. We used baseline data for the rule's 11 prognostic variables to stratify patients into five risk classes (I-V) of increasing probability of mortality. The outcome was overall mortality at 90 days after presentation. To assess the accuracy of the PESI to predict mortality, we estimated the sensitivity, specificity, and predictive values for low- (risk classes I/II) versus higher-risk patients (risk classes III-V), and the discriminatory power using the area under the receiver operating characteristic (ROC) curve. Among 357 patients with PE, overall mortality was 5.9%, ranging from 0% in class I to 17.9% in class V. The 186 (52%) low-risk patients had an overall mortality of 1.1% (95% confidence interval [CI]: 0.1-3.8%) compared to 11.1% (95% CI: 6.8-16.8%) in the 171 (48%) higher-risk patients. The PESI had a high sensitivity (91%, 95% CI: 71-97%) and a negative predictive value (99%, 95% CI: 96-100%) for predicting mortality. The area under the ROC curve was 0.78 (95% CI: 0.70-0.86). The PESI reliably identifies patients with PE who are at low risk of death and who are potential candidates for outpatient care. The PESI may help physicians make more rational decisions about hospitalization for patients with PE.

Risk Attitude And Wage Growth: Replication And Reconstruction

We replicate Shaw (1996) who found that individual wage growth is higher for individuals with greater preference for risk taking. Expanding her dataset with more American observations and data for Germany, Spain and Italy, we find mixed support for the earlier results. We present and estimate a new model and find that in particular the wage level is sensitive to attitudes towards risk taking. Comments given at the Labour Economics Conference in honour of Niels Westergaard (Nyborg, August 2008) and EALE 2008 (Amsterdam) and at seminars in Maastricht,Reus and Essen (RWI) are gratefully acknowledged. The authors also acknowledge financial support from the Spanish Ministry of Science and Innovation (grant number SEJ2007-66318) and from the Barcelona Economics Program of CREA. JEL code: J24; J30. Key words: wage growth, risk, post-school investment.

A general model to predict individual exposure to solar UV by using ambient irradiance data

Excessive exposure to solar ultraviolet (UV) is the main cause of skin cancer. Specific prevention should be further developed to target overexposed or highly vulnerable populations. A better characterisation of anatomical UV exposure patterns is however needed for specific prevention. To develop a regression model for predicting the UV exposure ratio (ER, ratio between the anatomical dose and the corresponding ground level dose) for each body site without requiring individual measurements. A 3D numeric model (SimUVEx) was used to compute ER for various body sites and postures. A multiple fractional polynomial regression analysis was performed to identify predictors of ER. The regression model used simulation data and its performance was tested on an independent data set. Two input variables were sufficient to explain ER: the cosine of the maximal daily solar zenith angle and the fraction of the sky visible from the body site. The regression model was in good agreement with the simulated data ER (R(2)=0.988). Relative errors up to +20% and -10% were found in daily doses predictions, whereas an average relative error of only 2.4% (-0.03% to 5.4%) was found in yearly dose predictions. The regression model predicts accurately ER and UV doses on the basis of readily available data such as global UV erythemal irradiance measured at ground surface stations or inferred from satellite information. It renders the development of exposure data on a wide temporal and geographical scale possible and opens broad perspectives for epidemiological studies and skin cancer prevention.

First Report of a Newborn Rat Ventilation Model for Bronchopulmonary Dysplasia Permitting Evaluation of Long-Term Outcome

Background: Bronchopulmonary dysplasia (BPD) remains the leading cause of chronic pulmonary morbidity among preterm neonates. However, the exact pathophysiology is still unknown. Here we present the first results from a new model inteAbstracts, 25th International Workshop on Surfactant Replacement 400 Neonatology 2010;97:395-400 grating the most common risk factors for BPD (lung immaturity, inflammation, mechanical ventilation (MV), oxygen), which allows long-term outcome evaluation due to a non-traumatic intubation procedure. Objectives: To test the feasibility of a new rat model by investigating effects of MV, inflammation and oxygen applied to immature lungs after a ventilation-free interval. Methods: On day 4, 5, or 6 newborn rats were given an intraperitoneal injection of lipopolysaccharides to induce a systemic inflammation. 24 h later they were anesthetized, endotracheally intubated and ventilated for 8 h with 60% oxygen. After weaning of anesthesia and MV the newborn rats were extubated and returned to their mothers. Two days later they were killed and outcome measurements were performed (histology, quantitative RT-PCR) and compared to animals investigated directly after MV. Results: Directly after MV, histological signs of ventilator-induced lung injury were found. After 48 h, the first signs of early BPD were seen with delayed alveolar formation. Expression of inflammatory genes was only transiently increased. After 48 h genes involved in alveolarization, such as matrix metalloproteinase-9 and tropoelastin, showed a significant change of their expression. Conclusion: For the first time we can evaluate in a newborn rat model the effects of MV after a ventilation-free interval. This allows discrimination between immediate response genes and delayed changes of expression of more structural genes involved in alveolarization.

Canakinumab Reduces The Risk Of Acute Gouty Arthritis Flares During Initiation Of Allopurinol Therapy: Results Of A Double-blind, Randomised Study

RATIONALE: This study assessed the efficacy and safety of canakinumab, a fully human anti-interleukin-1beta monoclonal antibody, for prophylaxis against acute gouty arthritis flares in patients initiating uratelowering therapy.METHODS: In this double-blind, double-dummy, dose-ranging study, 432 patients with gouty arthritis initiating allopurinol therapy were randomised 1:1:1:1:1:1:2 to receive: a single dose of canakinumab, 25, 50, 100, 200, or 300 mg subcutaneously (sc); four 4-weekly doses of canakinumab (50150125125 mg sc); or daily colchicine 0.5 mg orally for 16 weeks. Patients recorded details of flares in diaries. The study aimed to determine the canakinumab dose having equivalent efficacy to colchicine 0.5 mg at 16 weeks.RESULTS: A dose-response for canakinumab was not apparent with any of the four pre-defined dose-responsemodels. The estimated canakinumab dose with equivalent efficacy to colchicinewas belowthe range of doses tested.At 16 weeks, therewas a 62-72% reduction in themean number of flares per patient for canakinumab doses >50 mg vs colchicine based on a negative binomial model (rate ratio: 0.28-0.38, p50.0083), and the percentage of patients experiencing >1 flarewas significantly lower for all canakinumab doses (15- 27%) vs colchicine (44%, p<0.05). Therewas a 64-72%reduction in the risk of experiencing >1 flare for canakinumab doses >50 mg vs colchicine at 16 weeks (hazard ratio: 0.28-0.36, p50.05). The incidence of adverse events was similar across treatment groups.CONCLUSIONS: Single canakinumab doses >50 mg or four 4-weekly doses provided superior prophylaxis against flares compared with daily colchicine 0.5 mg.

A model for intra-familial distribution of an infectious disease (Chagas' disease)

A probabilistic model for intra-familial distribution of infectous disease is proposed and applied to the prevalence of positive serology for Trypanosoma cruzi infection in Northeastern Brazilian sample. This double with one tail excess model fits satisfactorily to the data and its interpretation says that around 51% of these 982 families are free of infection risk; among those that are at risk, 3% have a high risk (0.66), probably due to high domestic infestation of the vector bug; while 97% show a small risk (0.11), probably due to accidental, non-domestic transmission.

Investor protection and income inequality: risk sharing vs risk taking

This paper studies the relationship between investor protection, entrepreneurial risk taking and income inequality. In the presence of market frictions, better protection makes investors more willing to take on entrepreneurial risk when lending to firms, thereby improving the degree of risk sharing between financiers and entrepreneurs. On the other hand, by increasing risk sharing, investor protection also induces more firms to undertake risky projects. By increasing entrepreneurial risk taking, it raises income dispersion. By reducing the risk faced by entrepreneurs, it reduces income volatility. As a result, investor protection raises income inequality to the extent that it fosters risk taking, while it reduces it for a given level of risk taking. Empirical evidence from a panel of forty-five countries spanning the period 1976-2000 supports the predictions of the model.

Work, risk and health: differences between immigrants and natives in Spain

We analyze the impact of working and contractual conditions, particularly exposure to job risks, on the probability of acquiring a disability. We postulate a model in which this impact is mediated by the choice of occupation, with a level of risk associated to it. We assume this choice is endogenous, and that it depends on preferences and opportunities in the labour market, both of which may differ between immigrants and natives. To test this hypothesis we use data from the Continuous Sample of Working Lives of the Spanish SS system. It contains individual, job and firm information of over a million workers, including a representative sample of immigrants. We find that risk exposure increases the probability of permanent disability by 5.3%; temporary employment also influences health. Migrant status -with differences among regions of origin- significantly affects both disability and the probability of being employed in a risky occupation. Most groups of immigrants work in riskier jobs, but have lower probability of becoming disabled. Nevertheless, our theoretical hypothesis that disability and risk are jointly determined is not valid for immigrants: i.e. for them working conditions is not a matter of choice in terms of health.

Misallocation of capital in a model of endogenous financial intermediation and insurance

In this paper we analyze productivity and welfare losses from capital misallocation in a general equilibrium model of occupational choice and endogenous financial intermediation. We study the effects of borrowing and lending, insurance, and risk sharing on the optimal allocation of resources. We find that financial markets together with general equilibrium effects have large impact on entrepreneurs' entry and firm-size decisions. Efficiency gains are increasing in the quality of financial markets, particularly in their ability to alleviate a financing constraint by providing insurance against idiosyncratic risk.

A correlation sensitivity analysis of non-life underwriting risk in solvency capital requirement estimation

This paper analyses the impact of using different correlation assumptions between lines of business when estimating the risk-based capital reserve, the Solvency Capital Requirement (SCR), under Solvency II regulations. A case study is presented and the SCR is calculated according to the Standard Model approach. Alternatively, the requirement is then calculated using an Internal Model based on a Monte Carlo simulation of the net underwriting result at a one-year horizon, with copulas being used to model the dependence between lines of business. To address the impact of these model assumptions on the SCR we conduct a sensitivity analysis. We examine changes in the correlation matrix between lines of business and address the choice of copulas. Drawing on aggregate historical data from the Spanish non-life insurance market between 2000 and 2009, we conclude that modifications of the correlation and dependence assumptions have a significant impact on SCR estimation.

A New open economy macroeconomic model with endogenous portfolio diversification and firms entry

This paper provides a new benchmark for the analysis of the international diversi…cation puzzle in a tractable new open economy macroeconomic model. Building on Cole and Obstfeld (1991) and Heathcote and Perri (2009), this model speci…es an equilibrium model of perfect risk sharing in incomplete markets, with endogenous portfolios and number of varieties. Equity home bias may not be a puzzle but a perfectly optimal allocation for hedging risk. In contrast to previous work, the model shows that: (i) optimal international portfolio diversi…cation is driven by home bias in capital goods, independently of home bias in consumption, and by the share of income accruing to labour. The model explains reasonably well the recent patterns of portfolio allocations in developed economies; and (ii) optimal portfolio shares are independent of market dynamics.

How to use the standard model with own data?

In this work discuss the use of the standard model for the calculation of the solvency capital requirement (SCR) when the company aims to use the specific parameters of the model on the basis of the experience of its portfolio. In particular, this analysis focuses on the formula presented in the latest quantitative impact study (2010 CEIOPS) for non-life underwriting premium and reserve risk. One of the keys of the standard model for premium and reserves risk is the correlation matrix between lines of business. In this work we present how the correlation matrix between lines of business could be estimated from a quantitative perspective, as well as the possibility of using a credibility model for the estimation of the matrix of correlation between lines of business that merge qualitative and quantitative perspective.

Risk factors for positive tuberculin skin tests among migrant and resident children in Lausanne, Switzerland.

SETTING: Ambulatory paediatric clinic in Lausanne, Switzerland, a country with a significant proportion of tuberculosis (TB) among immigrants. AIM: To assess the factors associated with positive tuberculin skin tests (TST) among children examined during a health check-up or during TB contact tracing, notably the influence of BCG vaccination (Bacille Calmette Guérin) and history of TB contact. METHOD: A descriptive study of children who had a TST (2 Units RT23) between November 2002 and April 2004. Age, sex, history of TB contact, BCG vaccination status, country of origin and birth outside Switzerland were recorded. RESULTS: Of 234 children, 176 (75%) had a reaction equal to zero and 31 (13%) tested positive (>10 mm). In a linear regression model, the size of the TST varied significantly according to the history of TB contact, age, TB incidence in the country of origin and BCG vaccination status but not according to sex or birth in or outside Switzerland. In a logistic regression model including all the recorded variables, age (Odds Ratio = 1.21, 95% CI 1.08; 1.35), a history of TB contact (OR = 7.31, 95% CI 2.23; 24) and the incidence of TB in the country of origin (OR = 1.01, 95% CI 1.00; 1.02) were significantly associated with a positive TST but sex (OR = 1.18, 95% CI 0.50; 2.78) and BCG vaccination status (OR = 2.97, 95% CI 0.91; 9.72) were not associated. CONCLUSIONS: TB incidence in the country of origin, BCG vaccination and age influence the TSTreaction (size or proportion of TST > or = 10 mm). However the most obvious risk factor for a positive TST is a history of contact with TB.

Predictors of HIV-protection behaviour in HIV-positive men who have sex with casual male partners: a test of the explanatory power of an extended Information-Motivation-Behavioural Skills model.

This prospective study applies an extended Information-Motivation-Behavioural Skills (IMB) model to establish predictors of HIV-protection behaviour among HIV-positive men who have sex with men (MSM) during sex with casual partners. Data have been collected from anonymous, self-administered questionnaires and analysed by using descriptive and backward elimination regression analyses. In a sample of 165 HIV-positive MSM, 82 participants between the ages of 23 and 78 (M=46.4, SD=9.0) had sex with casual partners during the three-month period under investigation. About 62% (n=51) have always used a condom when having sex with casual partners. From the original IMB model, only subjective norm predicted condom use. More important predictors that increased condom use were low consumption of psychotropics, high satisfaction with sexuality, numerous changes in sexual behaviour after diagnosis, low social support from friends, alcohol use before sex and habitualised condom use with casual partner(s). The explanatory power of the calculated regression model was 49% (p<0.001). The study reveals the importance of personal and social resources and of routines for condom use, and provides information for the research-based conceptualisation of prevention offers addressing especially people living with HIV ("positive prevention").