Measuring risk with multiple eligible assets

The risk of financial positions is measured by the minimum amount of capital to raise and invest in eligible portfolios of traded assets in order to meet a prescribed acceptability constraint. We investigate nondegeneracy, finiteness and continuity properties of these risk measures with respect to multiple eligible assets. Our finiteness and continuity results highlight the interplay between the acceptance set and the class of eligible portfolios. We present a simple, alternative approach to the dual representation of convex risk measures by directly applying to the acceptance set the external characterization of closed, convex sets. We prove that risk measures are nondegenerate if and only if the pricing functional admits a positive extension which is a supporting functional for the underlying acceptance set, and provide a characterization of when such extensions exist. Finally, we discuss applications to set-valued risk measures, superhedging with shortfall risk, and optimal risk sharing

Barriers to European bioenergy expansion

The European Commission has set challenging targets for renewable energy expansion in Europe as part of its strategy to limit greenhouse gas emissions. Expansion of existing bioenergy capacity has a key role to play in ensuring these targets are met. However, significant technical and non-technical barriers to deployment of biomass technologies remain throughout Europe, the latter often being more difficult to address. Non-technical barriers are fundamental obstacles to biomass development. They represent limits or boundaries to the extent of deployment, often related to institutional frameworks, perceptions, socio-economic issues or engagement of and interfaces with related technology sectors. This paper presents an analysis, characterization and prioritization of the current non-technical barriers to thermo-chemical bioenergy expansion in Europe. Policy, economics and stakeholder understanding are strategically important if bioenergy potential is to be realized. Detailed policy evaluation with case study history from 4 European member states shows continuity of policy instruments is critical and specific support instruments work better than more general mechanisms. Improved stakeholder understanding (with the general public as a relevant stakeholder group) is key to increasing the acceptability of bioenergy. This requires different parallel strategies for different sectors/target groups. Promotional campaigns, dissemination of information to key multipliers, provision of independent factual information to the public, appropriate frameworks for handling approvals for new plants, forums for stakeholder interaction and certification schemes all have a role to play in improving bioenergy acceptability

Capital adequacy tests and limited liability of financial institutions

The theory of acceptance sets and their associated risk measures plays a key role in the design of capital adequacy tests. The objective of this paper is to investigate, in the context of bounded financial positions, the class of surplus-invariant acceptance sets. These are characterized by the fact that acceptability does not depend on the positive part, or surplus, of a capital position. We argue that surplus invariance is a reasonable requirement from a regulatory perspective, because it focuses on the interests of liability holders of a financial institution. We provide a dual characterization of surplus-invariant, convex acceptance sets, and show that the combination of surplus invariance and coherence leads to a narrow range of capital adequacy tests, essentially limited to scenario-based tests. Finally, we emphasize the advantages of dealing with surplus-invariant acceptance sets as the primary object rather than directly with risk measures, such as loss-based and excess-invariant risk measures, which have been recently studied by Cont, Deguest, and He (2013) and by Staum (2013), respectively

Time consistency conditions for acceptability measures, with an application to Tail Value at Risk

An acceptability measure is a number that summarizes information on monetary outcomes of a given position in various scenarios, and that, depending on context, may be interpreted as a capital requirement or as a price. In a multiperiod setting, it is reasonable to require that an acceptability measure should satisfy certain conditions of time consistency. Various notions of time consistency may be considered. Within the framework of coherent risk measures as proposed by Artzner et al. (1999), we establish implication relations between a number of different notions, and we determine how each notion of time consistency is expressed through properties of a representing set of test measures. We propose modifications of the standard Tail-Value-at-Risk measure that have stronger consistency properties than the original

Beyond cash-additive risk measures: when changing the num\'{e}raire fails

We discuss risk measures representing the minimum amount of capital a financial institution needs to raise and invest in a pre-specified eligible asset to ensure it is adequately capitalized. Most of the literature has focused on cash-additive risk measures, for which the eligible asset is a risk-free bond, on the grounds that the general case can be reduced to the cash-additive case by a change of numeraire. However, discounting does not work in all financially relevant situations, typically when the eligible asset is a defaultable bond. In this paper we fill this gap allowing for general eligible assets. We provide a variety of finiteness and continuity results for the corresponding risk measures and apply them to risk measures based on Value-at-Risk and Tail Value-at-Risk on $L^p$ spaces, as well as to shortfall risk measures on Orlicz spaces. We pay special attention to the property of cash subadditivity, which has been recently proposed as an alternative to cash additivity to deal with defaultable bonds. For important examples, we provide characterizations of cash subadditivity and show that, when the eligible asset is a defaultable bond, cash subadditivity is the exception rather than the rule. Finally, we consider the situation where the eligible asset is not liquidly traded and the pricing rule is no longer linear. We establish when the resulting risk measures are quasiconvex and show that cash subadditivity is only compatible with continuous pricing rules

Aerospace nickel-cadmium cell separator qualifications program

The present space qualified nylon separator, Pellon 2505 ML, is no longer available for aerospace nickel-cadmium (NiCd) cells. As a result of this anticipated unavailability, a joint Government program between the Air Force Space Division and the Naval Research Laboratory was established. Four cell types were procured with both the old qualified and the new unqualified separators. Acceptance, characterization, and life cycling tests are to be performed at the Naval Weapons Support Center, Crane, Ind. (NWSC/Crane). The scheduling and current status of this program are discussed and the progress of testing and available results are projected