Capturing Upside Risk

2019 ◽  
Author(s):  
David Hillson
Keyword(s):  
Upside Risk

The management of risk in a dryland environment

2011 ◽  
pp. 13-21
Author(s):  
D.I. Gray ◽  
J.I. Reid ◽  
D.J. Horne
Keyword(s):  
Risk Management ◽  
Service Providers ◽  
Management Strategies ◽  
Subterranean Clover ◽  
Farming Systems ◽  
Market Risk ◽  
Farm Size ◽  
Forage Crops ◽  
Risk Management Strategies ◽  
Upside Risk

A group of 24 Hawke's Bay hill country farmers are working with service providers to improve the resilience of their farming systems. An important step in the process was to undertake an inventory of their risk management strategies. Farmers were interviewed about their farming systems and risk management strategies and the data was analysed using descriptive statistics. There was considerable variation in the strategies adopted by the farmers to cope with a dryland environment. Importantly, these strategies had to cope with three types of drought and also upside risk (better than expected conditions), and so flexibility was critical. Infra-structure was important in managing a dryland environment. Farmers chose between increased scale (increasing farm size) and geographic dispersion (owning a second property in another location) through to intensification (investing in subdivision, drainage, capital fertiliser, new pasture species). The study identified that there may be scope for further investment in infra-structural elements such as drainage, deeper rooting alternative pasture species and water harvesting, along with improved management of subterranean clover to improve flexibility. Many of the farmers used forage crops and idling capacity (reduced stocking rate) to improve flexibility; others argued that maintaining pasture quality and managing upside risk was a better strategy in a dryland environment. Supplementary feed was an important strategy for some farmers, but its use was limited by contour and machinery constraints. A surprisingly large proportion of farmers run breeding cows, a policy that is much less flexible than trading stock. However, several farmers had improved their flexibility by running a high proportion of trading cattle and buffer mobs of ewe hoggets and trade lambs. To manage market risk, the majority of farmers are selling a large proportion of their lambs prime. Similarly, cattle are either sold prime or store onto the grass market when prices are at a premium. However, market risk associated with the purchase of supplements and grazing was poorly managed.

Internal Control Quality and Bank Risk-Taking and Performance

2020 ◽  
Author(s):  
Matthew Baugh ◽  
Matthew Ege ◽  
Christopher G. Yust
Keyword(s):  
Internal Control ◽  
Risk Taking ◽  
Downside Risk ◽  
Internal Controls ◽  
Bank Risk ◽  
Material Weakness ◽  
Control Quality ◽  
Interest Income ◽  
Upside Risk ◽  
And Performance

Using a sample of bank-years from 2005 to 2017, we examine the effect of internal control quality on future risk-taking and performance. We find that banks that disclose a material weakness in internal controls have higher risk-taking and worse performance in the future, including having a higher (lower) likelihood of experiencing large losses (gains). These findings suggest that weak controls increase (reduce) downside (upside) risk-taking or conversely that strong controls increase (reduce) upside (downside) risk-taking. Path analyses suggest that 22.3 to 43.7 percent of the effect of internal control quality on future performance is through risk-taking. Additionally, material weaknesses are negatively associated with total asset, loan, interest income, and non-interest income growth, suggesting that internal control quality affects both core and non-core activities of banks. Overall, results suggest that strong internal controls improve bank risk-taking, in part through asymmetrically reducing downside risk-taking while facilitating upside risk-taking, ultimately improving bank performance.

Downside and upside risk spillovers between green finance and energy markets

2022 ◽  
pp. 102612
Author(s):  
Hela Mzoughi ◽  
Christian Urom ◽  
Khaled Guesmi
Keyword(s):  
Energy Markets ◽  
Green Finance ◽  
Upside Risk

scholarly journals CHARACTERISTICS OF OMEGA-OPTIMIZED PORTFOLIOS AT DIFFERENT LEVELS OF THRESHOLD RETURNS

2014 ◽  
Vol 12 (2) ◽  
pp. 245-265 ◽  
Author(s):  
Renaldas Vilkancas
Keyword(s):  
Portfolio Optimization ◽  
Risk Measures ◽  
High Threshold ◽  
Portfolio Performance ◽  
Threshold Values ◽  
Portfolio Returns ◽  
Upside Risk ◽  
And Performance ◽  
Risk Free Rate ◽  
Different Levels

There is little literature considering effects that the loss-gain threshold used for dividing good and bad outcomes by all downside (upside) risk measures has on portfolio optimization and performance. The purpose of this study is to assess the performance of portfolios optimized with respect to the Omega function developed by Keating and Shadwick at different levels of the threshold returns. The most common choices of the threshold values used in various Omega studies cover the risk-free rate and the average market return or simply a zero return, even though the inventors of this measure for risk warn that “using the values of the Omega function at particular points can be critically misleading” and that “only the entire Omega function contains information on distribution”. The obtained results demonstrate the importance of the selected values of the threshold return on portfolio performance – higher levels of the threshold lead to an increase in portfolio returns, albeit at the expense of a higher risk. In fact, within a certain threshold interval, Omega-optimized portfolios achieved the highest net return, compared with all other strategies for portfolio optimization using three different test datasets. However, beyond a certain limit, high threshold values will actually start hurting portfolio performance while meta-heuristic optimizers typically are able to produce a solution at any level of the threshold, and the obtained results would most likely be financially meaningless.

The Implications of the Comprehensive Spending Review for the Long-Run Growth Rate: a View From the Literature

2000 ◽  
Vol 171 ◽  
pp. 94-105 ◽  
Author(s):  
Richard Kneller
Keyword(s):  
Growth Rate ◽  
Quantitative Assessment ◽  
Growth Potential ◽  
Empirical Literature ◽  
Long Run ◽  
Capital Spending ◽  
The Government ◽  
Upside Risk ◽  
Empirical Growth ◽  
Trend Growth

In 1998 the Government set out its expenditure plans for the remainder of the current Parliament in the Comprehensive Spending Review. Announced within this were large increases in expenditure on education, health and capital spending with the objective of meeting the Government‘s manifesto pledges. Yet as the recent report by the Treasury on the UK's trend rate of growth states, the expenditure plans of the CSR may also help to raise the growth potential of the economy, although no quantitative assessment of this was made. Using evidence from the empirical growth literature, this article examines the possible effects of these policies on the long-run growth rate of the economy. In general the results from the empirical literature are non-robust, but by conducting a very different style of review we are able to identify several studies from which to determine what these effects might be. Using a stylised version of the CSR we estimate that it may raise the long-run growth rate by as much as 0.1 of a percentage point per annum, although there is some sensitivity to the underlying assumptions. This appears to confirm the likelihood of modest upside risk to the Treasury's estimate of trend growth.

Downside and upside risk spillovers between exchange rates and stock prices

2016 ◽  
Vol 62 ◽  
pp. 76-96 ◽  
Author(s):  
Juan C. Reboredo ◽  
Miguel A. Rivera-Castro ◽  
Andrea Ugolini
Keyword(s):  
Exchange Rates ◽  
Stock Prices ◽  
Upside Risk

scholarly journals Insurer’s Duty to Obtain Information under the IDD Directive – Threat or Opportunity?

2020 ◽  
Vol 29 ◽  
pp. 23-33
Author(s):  
Olli Norros
Keyword(s):  
Downside Risk ◽  
Legal Systems ◽  
Comprehensive Information ◽  
National Jurisdiction ◽  
Scope Of Application ◽  
Upside Risk

Enacting Directive 2016/97, on insurance distribution (the IDD), has, inter alia, extended the scope of application of regulation, increased the requirements for expertise of the personnel of insurers and insurance intermediaries, and particularised the content of the duty to give information. One of the novelties in the IDD, with regard to the insurer’s duty to provide information, is the duty of the insurer to obtain information from the customer for enabling fulfilment of its own duty to give information. Before the IDD, the balance between the insurer’s duty to give information and the customer’s duty to become acquainted with the information received was customarily understood in many legal systems such that the insurer is obligated to supply comprehensive information on its insurance products in an understandable form while the customer bears the risk of selecting correct and sufficient insurance in reliance on the information received. In other words, the insurer is liable in respect of the information as such, but the customers accept a risk of applying the information incorrectly in their specific circumstances. This background gives rise to the following questions, examined in the article: 1) What is the legislative background of the new duty to obtain information, and what are the objectives behind it? 2) What are the consequences of neglecting this duty? 3) What is the ‘upside risk’ of the reform? That is, in what kinds of cases could the new duty improve matters? 4) What is the ‘downside risk’? In other words, might the new duty cause any problems? The article provides analysis focused on the IDD itself rather than on any national jurisdiction in which the directive has been implemented.

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