A comparison of extreme value theory approaches for determining value at risk

This paper compares a number of different extreme value models for determining the value at risk (VaR) of three LIFFE futures contracts. A semi-nonparametric approach is also proposed, where the tail events are modeled using the generalised Pareto distribution, and normal market conditions are captured by the empirical distribution function. The value at risk estimates from this approach are compared with those of standard nonparametric extreme value tail estimation approaches, with a small sample bias-corrected extreme value approach, and with those calculated from bootstrapping the unconditional density and bootstrapping from a GARCH(1,1) model. The results indicate that, for a holdout sample, the proposed semi-nonparametric extreme value approach yields superior results to other methods, but the small sample tail index technique is also accurate.

Nitrogen processes in aquatic ecosystems

Executive summary Nature of the problem (science/management/policy) • Freshwater ecosystems play a key role in the European nitrogen (N) cycle, both as a reactive agent that transfers, stores and processes N loadings from the atmosphere and terrestrial ecosystems, and as a natural environment severely impacted by the increase of these loadings. Approaches • This chapter is a review of major processes and factors controlling N transport and transformations for running waters, standing waters, groundwaters and riparian wetlands. Key findings/state of knowledge • The major factor controlling N processes in freshwater ecosystems is the residence time of water, which varies widely both in space and in time, and which is sensitive to changes in climate, land use and management. • The effects of increased N loadings to European freshwaters include acidification in semi-natural environments, and eutrophication in more disturbed ecosystems, with associated loss of biodiversity in both cases. • An important part of the nitrogen transferred by surface waters is in the form of organic N, as dissolved organic N (DON) and particulate organic N (PON). This part is dominant in semi-natural catchments throughout Europe and remains a significant component of the total N load even in nitrate enriched rivers. • In eutrophicated standing freshwaters N can be a factor limiting or co-limiting biological production, and control of both N and phosphorus (P) loading is oft en needed in impacted areas, if ecological quality is to be restored. Major uncertainties/challenges • The importance of storage and denitrifi cation in aquifers is a major uncertainty in the global N cycle, and controls in part the response of catchments to land use or management changes. In some aquifers, the increase of N concentrations will continue for decades even if efficient mitigation measures are implemented now. • Nitrate retention by riparian wetlands has oft en been highlighted. However, their use for mitigation must be treated with caution, since their effectiveness is difficult to predict, and side effects include increased DON emissions to adjacent open waters, N2O emissions to the atmosphere, and loss of biodiversity. • In fact, the character and specific spatial origins of DON are not fully understood, and similarly the quantitative importance of indirect N2O emissions from freshwater ecosystems as a result of N leaching losses from agricultural soils is still poorly known at the regional scale. • These major uncertainties remain due to the lack of adequate monitoring (all forms of N at a relevant frequency), especially – but not only – in the southern and eastern EU countries. Recommendations (research/policy) • The great variability of transfer pathways, buffering capacity and sensitivity of the catchments and of the freshwater ecosystems calls for site specific mitigation measures rather than standard ones applied at regional to national scale. • The spatial and temporal variations of the N forms, the processes controlling the transport and transformation of N within freshwaters, require further investigation if the role of N in influencing freshwater ecosystem health is to be better understood, underpinning the implementation of the EU Water Framework Directive for European freshwaters.

Environmental evaluation of agri-environment schemes using participatory approaches: experiences of testing the Agri-Environmental Footprint Index

The Agri-Environment Footprint Index (AFI) has been developed as a generic methodology to assess changes in the overall environmental impacts from agriculture at the farm level and to assist in the evaluation of European agri-environmental schemes (AES). The methodology is based on multicriteria analysis (MCA) and involves stakeholder participation to provide a locally customised evaluation based on weighted environmental indicators. The methodology was subjected to a feasibility assessment in a series of case studies across the EU. The AFI approach was able to measure significant differences in environmental status between farms that participated in an AES and nonparticipants. Wider environmental concerns, beyond the scheme objectives, were also considered in some case studies and the benefits for identification of unintentional (and often beneficial) impacts of AESs are presented. The participatory approach to AES valuation proved efficient in different environments and administrative contexts. The approach proved to be appropriate for environmental evaluation of complex agri-environment systems and can complement any evaluation conducted under the Common Monitoring and Evaluation Framework. The applicability of the AFI in routine monitoring of AES impacts and in providing feedback to improve policy design is discussed.