Pooling, Pricing and Trading of Risks

Abstract. Exchange of risks is considered here as a transferableutility, cooperative game, featuring risk averse players. Like in competitive equilibrium, a core solution is determined by shadow prices on state-dependent claims. And like in finance, no risk can properly be priced only in terms of its marginal distribution. Pricing rather depends on the pooled risk and on the convolution of individual preferences. The paper elaborates on these features, placing emphasis on the role of prices and incompleteness. Some novelties come by bringing questions about existence, computation and uniqueness of solutions to revolve around standard Lagrangian duality. Especially outlined is how repeated bilateral trade may bring about a price-supported core allocation.Keywords: cooperative game; transferable utility; core; risks; mutual insurance; contingent prices; bilateral exchange; supergradients; stochastic approximation.

Pooling, Pricing and Trading of Risks

Exchange of risks is considered here as a transferable-utility cooperative game. When the concerned agents are risk averse, there is a core imputation given by means of shadow prices on state-dependent claims. Like in finance, a risk can hardly be evaluated merely by its inherent statistical properties (in isolation from other risks). Rather, evaluation depends on the pooled risk and the convolution of individual preferences. Explored below are relations to finance with some emphasis on incompleteness. Included is a process of bilateral trade which converges to a price-supported core allocation.

Grain marketing and National Competition Policy: reform or reaction?

Grain marketing arrangements in Australia have been controversial for many years. Following an account of the historical background to grain marketing, this article concentrates on more recent debates. The most interesting technical economic argument concerns the validity of claims that statutory marketing authorities with export monopoly powers can obtain higher prices. The article also discusses how marketing in Australia has been affected by Commonwealth and State Government policies with respect to microeconomic reform and privatization. Although major changes appear to have been made in grain marketing and its institutions, there are inherent economic problems with the current approach to deregulation.Crop Production/Industries, Marketing,

Empirical Investigation of Flexible Pricing and Payment Alternatives on Canadian Wheat Board Pooling for Wheat

Crop Production/Industries, Marketing,

Flexible Pricing and Payment Alternatives on Canadian Wheat Board Pooling For Wheat

Crop Production/Industries, Marketing,

THE SECTION 301 ACTION AND EFFECTS OF THE CANADIAN WHEAT BOARD ON U.S. HARD RED SPRING AND AMBER DURUM WHEAT

Crop Production/Industries,

STATE TRADING IN AGRICULTURE: AN ANALYTICAL FRAMEWORK

This paper highlights some of the recent concerns regarding agricultural state trading enterprises (STEs) and proposes an analytical framework to examine the trade impacts of such entities. Issues associated with discriminatory pricing, exclusive rights to sell and purchase commodities, and unfair competitive advantage vis-a-vis private traders are expected to be major concerns on the export side, while on the import side, the relevance of tariffication in the presence of STEs is being questioned. Our paper proposes that, in most instances, tariff equivalents are the most relevant methodology to quantify the trade impacts of agricultural STEs. But, obtaining empirical information that would enable the calculation of such measures is not an easy task. To that end, a classification scheme that highlights the different types of STEs in terms of their ability to distort trade is proposed. Quantification can then focus on those most likely to impact trade.International Relations/Trade,

Risk Management, Capital Budgeting and Capital Structure Policy for Financial Institutions: An Integrated Approach

We develop a framework for analyzing the capital allocation and capital structure decisions facing financial institutions such as banks. Our model incorporates two key features: I) value-maximizing banks have a well-founded concern with risk management; and ii) not all the risks they face can be frictionlessly hedged in the capital market. This approach allows us to show how bank-level risk management considerations should factor into the pricing of those risks that cannot be easily hedged. We examine several applications, including: the evaluation of proprietary trading operations; and the pricing of unhedgeable derivatives portfolios. This paper was presented at the Financial Institutions Center's May 1996 conference on "

Risks, lessons learned, and secondary markets for greenhouse gas reductions

Collectively or individually, countries are likely to implement policies designed to limit greenhouse gas emissions. Experience from tradable quota schemes suggests that emissions trading could significantly reduce the costs of emission limits. The Kyoto Protocol provides the framework for a common trading mechanism for all countries - including countries that would not face immediate emission limits. Significantly, the Protocol places the responsibility for meeting emission limits with national governments. How policymakers choose to implement emission limits will significantly shape the incentives that drive evolving secondary markets for greenhouse-gas-based instruments. Potential market participants who were surveyed rate policy-related risk as higher than business-related risks. Domestic polices designed to reduce fragmentation in secondary markets, establish clear baselines and procedures, and strengthen host-country institutions can all help reduce the risks and costs of emission limits.Economic Theory&Research,Labor Policies,Payment Systems&Infrastructure,Environmental Economics&Policies,Health Economics&Finance,Health Economics&Finance,Environmental Economics&Policies,Carbon Policy and Trading,Energy and Environment,Economic Theory&Research