The Policy Risk Premium in Equity Derivatives

2019 ◽  
Author(s):  
Giovanni Gabriele Vecchio
Keyword(s):  
Risk Premium ◽  
Equity Derivatives ◽  
Policy Risk

scholarly journals The Effects Of Macroeconomic And Policy Uncertainty On Exchange Rate Risk Premium

2011 ◽  
Vol 6 (3) ◽  
Author(s):  
Juan Angel Jimenez Martin ◽  
Rodrigo Peruga Urrea
Keyword(s):  
Exchange Rate ◽  
Risk Premium ◽  
Macroeconomic Policy ◽  
Theoretical Expression ◽  
Future Research ◽  
Policy Uncertainty ◽  
Currency Unions ◽  
Macroeconomic Uncertainty ◽  
Main Determinants ◽  
Policy Risk

The goal of this paper is to identify the main determinants of the risk premium in some European currency markets just before the EMU. To that extent, we start from Lucas (1982) exchange rate model and derive an analytical expression for the forward premium. This expression includes money and production variables and it is quite standard, except for the inclusion of macroeconomic policy risk. Under some standard assumptions, this formula simplifies substantially and becomes amenable to regression analysis. Then, using standard measures of money and production, as well as interest rate swaps as indicators of macroeconomic policy risk, the theoretical expression is estimated. We provide evidence suggesting that it is policy uncertainty, much more than fundamental macroeconomic uncertainty, which determined risk premium over the convergence process to the euro. Whether these results can be extended to similar experiences for other currency unions remains open for future research.

scholarly journals Show me the money: The monetary policy risk premium

2020 ◽  
Vol 135 (2) ◽  
pp. 320-339 ◽  
Author(s):  
Ali Ozdagli ◽  
Mihail Velikov
Keyword(s):  
Monetary Policy ◽  
Risk Premium ◽  
Policy Risk

The moderating effect of bureaucratic quality on the pricing of policy instability

2015 ◽  
Vol 5 (3) ◽  
pp. 303-334 ◽  
Author(s):  
Swee-Sum Lam ◽  
Weina Zhang
Keyword(s):  
Interest Rate ◽  
Interest Rates ◽  
Risk Premium ◽  
Developing Economies ◽  
Moderating Effect ◽  
Content Type ◽  
Chinese Policy ◽  
Policy Risk ◽  
Quality Policy

Purpose – The purpose of this paper is to examine how policy instability is priced in interest rates. Policy instability refers to the likelihood that the current policy will be changed in the future in the absence of political power shifts. Design/methodology/approach – Chinese government’s experimental policy-making approach provides an ideal set of frequent policy flip-flops which allows us to identify the effect of policy changes. Findings – Conditional on the bureaucratic quality of policymaking, a good-quality policy reversal is related to reductions in interest rate term spread and volatility; a bad-quality policy reversal is related to increases in the spread and volatility. The bureaucratic quality is multi-dimensional and the moderating effect is stronger on interest rates when it is measured more precisely. Originality/value – First, we can use the interest rate dynamics to infer the policy risk premium, which is a more objective market indicator of the bureaucratic quality of the policy change. Second, the study is among the first that documents the pricing of policy instability can be moderated by the bureaucratic quality. The results indicate that it is important for a government to be responsive and consistent in liberalizing the financial market. It will lead to reduced cost of capital and volatility for investors and firms in the economy. Third, given that the bureaucratic quality is multi-dimensional and produces stronger impact jointly, a country shall continue to improve on different aspects of the bureaucratic quality. Although the study is based on the empirical evidence from Chinese policy environment, the results can be broadly applied to any developing economies that intend to liberalize the market to spur economic growth.

scholarly journals The Influence of Policy Risk on Swiss Wind Power Investment

2021 ◽  
pp. 345-368
Author(s):  
Anna Broughel ◽  
Rolf Wüstenhagen
Keyword(s):  
Wind Energy ◽  
Wind Power ◽  
Risk Premium ◽  
Winter Season ◽  
Discounted Cash Flow ◽  
Reference Case ◽  
Levelized Cost Of Electricity ◽  
Policy Risk ◽  
Domestic Electricity ◽  
Permitting Process

AbstractWind energy is one of the most affordable and fastest-growing sources of electricity worldwide. As a large share of wind power generation occurs in the winter season, it could make an important contribution to seasonal diversification of domestic electricity supply. However, the development of wind energy projects in Switzerland has been characterized by long and complex administrative processes, with the planning phase taking up to a decade, more than twice as long as the European average. The objective of this chapter is to quantify the risk premium that lengthy permitting processes imply for wind energy investors in Switzerland and to suggest ways to reduce policy risk. The data have been gathered through 22 confidential interviews with project developers and several cantonal permitting agencies as well as a review of federal and cantonal regulatory documents. Furthermore, a discounted cash flow model was built to compare the profitability indicators (IRR, NPV) and the levelized cost of electricity (LCOE) of a reference case to scenarios with various risks—for example, delays in the permitting process, downsizing the project, or changes in the regulatory environment such as phasing out feed-in tariffs. The model shows that the highest profitability risks are related to the availability of a feed-in tariff, but other changes in the permitting process can also have a critical impact on the project’s bottom line. The findings illustrate a significant policy risk premium in the pre-construction stage faced by wind energy project developers in Switzerland.

Taxation of Equity Derivatives and Structured Products

2003 ◽  
Author(s):  
Tony Rumble ◽  
Mohammed Amin ◽  
Edward D Kleinbard
Keyword(s):  
Structured Products ◽  
Equity Derivatives

Sub-state actors and foreign policy risk-taking: The Kurdistan Regional Government of Iraq

2020 ◽  
Vol 8 (2) ◽  
pp. 339-369
Author(s):  
David Romano
Keyword(s):  
Foreign Policy ◽  
Risk Taking ◽  
Foreign Relations ◽  
External Environment ◽  
Regional Government ◽  
Political Systems ◽  
Foreign Policies ◽  
State Actors ◽  
Policy Risk

The analysis presented here offers a possible framework for understanding when sub-state actors behave prudently and more strategically in their foreign relations, and when other priorities might instead heighten the chances of seemingly irrational, erratic, or dangerous, foreign policies. Using a case study of the Kurdistan Regional Government of Iraq to illustrate the argument, the author attempts to show how “regime consolidation” plays a key role in allowing such actors to prioritise policies aimed at grappling with external challenges, threats and opportunities. Internally legitimate, consolidated regimes can better present “one face” to the outside world and behave more strategically in the international arena.  Political systems lacking consolidation or internal legitimacy, in contrast, turn to the external environment in search of resources to help them with domestic threats and challenges. This may lead to seemingly erratic, unpredictable and risky foreign policies on their part. Abstract in Kurmanji Aktorên bin-dewletî û girtina rîskên siyaseta derve: Hikûmeta Herêma Kurdistanê ya Iraqê Analîza ku li vir hatiye pêşkêşkirin çarçoveyeke muhtemel ji bo fehmkirina demên ku aktorên bin-dewletî di têkiliyên xwe yên derve de bi hişyarî û stratejîk tevdigerin û demên di dewsê de pêşkiyên din şansên siyaseta derve yên xeternak, guherbar û îrrasyonel didine ber xwe. Bi bikaranîna mînaka Hikûmeta Herêma Kurdistanê ya Iraqê nivîskar hewl dide ku nîşan bide ka çawa “xurtkirina rejîmê” roleke serekî dilîze di destûrdana van aktoran de ku pêşekiyê bidin polîtîkayên ku bi dijwarî, tehdît û talûkeyên derve bigre. Rejîmên di hundir de meşrû û xurt dikarin baştir “rûyekî” nîşanê cîhana derve bidin û di qada navneteweyî de bêhtir stratejîk tevbigerin. Lê belê sîstemên siyasî yên ne xurt û di hundir de ne meşrû jî berê xwe didin derdora derve di lêgerîna çavkaniyan de da ku alîkariya wan bikin ji bo talûke û zehmetiyên hundirîn. Ev dikare bibe sedem ku ew polîtîkayên derveyî yên birîsk, netexmînbar û hevnegir ên berçav bigrin ji aliyê xwe ve. Abstract in Sorani Ektere dewllete lawekeyyekan û xoleqerey metrisî danî syasetî derewe: hkumetî herêmî kurdistanî ‘êrraq Ew şîkaryaney lêreda amadekrawn , çwarçêweyekî guncaw pêşkeş dekat bo têgeyiştin lewey le katêkda ektere dewllete lawekîyekan beşêweyekî wiryayane û sitratîjyanetir le peywendîyekanî derewey xoyanda hellsukewt deken, we katêkîş ewlewîyetekanî tir renge şansî ewey le rukeşda wek syasetî derekî na'eqllanî, namo, yan trisnak derdekewêt berizbkatewe. Hkumetî herêmî kurdistanî 'êraq wek keysî twêjînewe bekarhatuwe bo rûnkirdnewey ew argumêntey ke nûser hewll dedat nîşanî bdat çon “ptewkirdnî rjêm” rollêkî serekî debînêt le rêgedan bew core ekterane bo ewey ew syasetane bkate ewlewîyet ke amanc lêy berberekanêy allingarîy û hereşe û derfete drekîyekane. Ew rjêmaney ke şer'îyetî nawxoyyan heye û çespawn baştir detwanin “yek rûîy” pîşanî dinyay derewe bken û le meydanî nêwdewlletîşda sitratîjyanetir hellsukewt bken. Bepêçewanewe, ew sîsteme syasyaney ke neçespawn û şer'îyetî nawxoyyan kurtidênêt, le gerran bedway serçawekanda rû le jîngey derekî deken bo ewey yarmetîyan bda le herreşe û allingarîye nawxoyyekan. Eme lewaneye wabkat ke ew syasete derekîyaney ke be namo, pêşbînî nekraw û metrisîdar derdekewn le terefî ewanewe bêt. Abstract in Zazaki Faîlê bindewletkî û rîskgêrîya sîyasetê teberî: Hukmatê Herêmê Kurdîstanî yê Îraqî   No analîzê tîyayî seba fehmkerdişê wextê ke faîlê bindewletkîyî têkilîyanê xo yê teberî de bitedbîr û hîna zaf stratejîk hereket kenê û wexto ke herinda ci de prîorîteyê bînî asayîş ra gore îhtîmalê polîtîkayanê teberî yê bêmantiq, bêqerar yan zî xeternakan kenê zêde, ci rê çarçewayêka potansîyele pêşkêş keno. Bi xebata nimûneyî yê Hukmatê Herêmê Kurdîstanî yê Îraqî no arguman nîşan dîyeno. Nuştox wazeno bimusno ke “konsolîdasyonê rejîmî” senî rolêko sereke gêno ke tede kerdoxanê winasîyan rê destûr dîyeno ke polîtîkayanê xo yê çareserkerdişê zehmetî, tehdîd û îmkananê teberî prîorîtîze bikerê. Eke zere de meşrû yê, rejîmê kondolîdekerdeyî eşkenê xo bi “yew rî” teber rê bimusnê û sahneya mîyanneteweyîye de hîna zaf stratejîk hereket bikerê. Heto bîn ra, sîstemê sîyasîyî ke tede konsolîdasyon yan zî meşrûîyetê zereyî çin ê, ê xo çarnenê dorûverê xo yê teberî ke seba helkerdişê tehdîd û zehmetîyanê zereyî ro çimeyan bigêre. No seba înan beno ke bibo sebebê polîtîkayanê teberî yê bêqerar, nevervînbar û rîzîkodaran.

The long-run stability of a small, open economy under crawling peg regime

2002 ◽  
Vol 52 (1) ◽  
pp. 57-78
Author(s):  
S. Çiftçioğlu
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Risk Premium ◽  
Small Open Economy ◽  
Exchange Rate Policy ◽  
Price Stability ◽  
Output Stability ◽  
Long Run ◽  
The Exchange Rate ◽  
The Impact

The paper analyses the long-run (steady-state) output and price stability of a small, open economy which adopts a “crawling-peg” type of exchange-rate regime in the presence of various kinds of random shocks. Analytical and simulation results suggest that with the exception of money demand shocks, an exchange rate policy which involves a relatively higher rate of indexation of the exchange rate to price level is likely to lead to the worsening of price stability for all types of shocks. On the other hand, the impact of adopting such a policy on output stability depends on the type of the shock; for policy shocks to the exchange rate and shocks to output demand, output stability is worsened whereas for the shocks to risk premium of domestic assets, supply price of domestic output and the wage rate, better output stability is achieved in the long run.

Determining the Equity Risk Premium

2002 ◽  
Vol 2002 (3) ◽  
pp. 37-48 ◽  
Author(s):  
Peter L. Bernstein
Keyword(s):  
Risk Premium ◽  
Equity Risk Premium ◽  
Equity Risk
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