The Value of Real and Financial Risk Management

We characterize a firm as a nexus of activities and projects with their associated cashflows. Production and operations activities and real risk management activities distribute cashflows over states of nature and time periods, leading to a transformation possibility frontier similar to a production function. The concavity of the frontier induces a firm to react more or less to changes in market prices of risks to attain the new value maximizing portfolio of real activities. Financial risk management helps implement these real project changes and alleviate the related reorganization and coordination problems. Empirically, we show that a firm's reactiveness to variations in risk prices is linked to its hedging activities. We also argue that financial risk management allows a firm to meet cashflow-at-risk or value-at-risk constraints at little or no cost. Nous caractérisons une entreprise comme un ensemble de projets avec les flux monétaires qui y sont associés. Les activités de production et d'exploitation de même que les activités de gestion réelle des risques distribuent ces flux entre divers états de la nature et périodes. Il en résulte une frontière des possibilités de transformation des flux similaire à une frontière de production. La concavité de la frontière amène la firme à réagir plus ou moins aux changements dans les prix des risques pour atteindre le nouveau portefeuille optimal d’activités réelles. La gestion financière des risques aide à implémenter ces modifications dans les projets et allège ainsi les problèmes associés de réorganisation et de coordination. Empiriquement, nous montrons que le degré de réactivité de la firme aux variations des prix des risques influence ses activités de couverture. De plus, nous montrons que la gestion financière des risques permet à l’entreprise de rencontrer des contraintes de cashflow-à-risque ou de valeur-à-risque à peu ou pas de frais.risk management, firm value, hedging, value at risk, gestion des risques, valeur de la firme, coordination, valeur à risque

Trade liberalization in Uruguay: Domestic and foreign firms

The reallocation of resources is one of the main impacts of trade liberalization processes. In the case of manufacturing industries resources will be reallocated from import--competing sectors to export--oriented sectors. This paper studies the effects that a more open economic environment has had on the entry conditions for foreign and domestic firms in Uruguayan manufacturing industries. We find significant differences in the behavior of foreign and domestic firms, both when they are incumbents or when they act as potential entrants. In general, foreign firms seem to be more successful in applying entry deterring strategies, due to advantages in foreign markets, deeper financial resources or better technological capabilities. They also appear to be more responsive to entry conditions when they face the prospects of entering a given industry.Production and market structure,industry studies

A Monte-Carlo Method for Optimal Portfolios

This paper provides (i) new results on the structure of optimal portfolios, (ii) economic insights on the behavior of the hedging components and (iii) an analysis of simulation-based numerical methods. The core of our approach relies on closed form solutions for Melliavin derivatives of diffusion processes which simplify their numerical simulation and facilitate the computation and simulation of the hedging components of optimal portfolios. One of our procedures relies on a variance-stabilizing transformation of the underlying process which eliminates stochastic integrals from the representation of Malliavin derivatives and ensures the existence of an exact weak approximation scheme. This improves the performance of Monte-Carlo methods in the numerical implementation of portfolio rules derived on the basis of probabilistic arguments. Our approach is flexible and can be used even when the dimensionality of the set of underlying state variables is large. We implement the procedure for a class of bivariate and trivariate models in which the uncertainty is described by diffusion processes for the market price of risk (MPR), the interest rate (IR) and other relevant factors. After calibrating the models to the data we document the behavior of the portfolio demand and the hedging components relative to the parameters of the model such as risk aversion, investment horizon, speeds of mean-reversion, IR and MPR levels and volatilities. We show that the hedging terms are important and cannot be ignored for asset allocation purposes. Risk aversion and investment horizon emerge as the most relevant factors: they have a substantial impact on the size of the optimal portfolio and on its economic properties for realistic values of the models' parameters. Cet article établit des résultats nouveaux sur (i) la structure des portefeuilles optimaux, (ii) le comportement des termes de couverture et (iii) les méthodes numériques de simulation en la matière. Le fondement de notre approche repose sur l'obtention de formules explicites pour les dérivées de Malliavin de processus de diffusion, formules qui simplifient leur simulation numérique et facilitent le calcul des composantes de couverture des portefeuilles optimaux. Une de nos procédures utilise une transformation des processus sous-jacents qui élimine les intégrales stochastiques de la représentation des dérivées de Malliavin et assure l'existence d'une approximation faible exacte. Cette transformation améliore alors la performance des méthodes de Monte-Carlo lors de l'implémentation numérique des politiques de portefeuille dérivées par des méthodes probabilistes. Notre approche est flexible et peut être utilisée même lorsque la dimension de l'espace des variables d'états sous-jacentes est large. Cette méthode est appliquée dans le cadre de modèles bivariés et trivariés dans lesquels l'incertitude est décrite par des mouvements de diffusion pour le prix de marché du risque, le taux d'intérêt et les autres facteurs d'importance. Après avoir calibré le modèle aux données nous examinons le comportement du portefeuille optimal et des composantes de couverture par rapport aux paramètres tels que l'aversion au risque, l'horizon d'investissement, le taux d'intérêt et le prix de risque du marché. Nous démontrons l'importance des demandes de couverture. L'aversion au risque et l'horizon d'investissement émergent comme des facteurs déterminants qui ont un impact substantiel sur la taille du portefeuille optimal et sur ses propriétés économiques.Optimal portfolios, hedging demands, Malliavin derivatives, explicit solutions, multiple state variables, IR-hedge, MPR-hedge, Monte Carlo simulation, Doss transformation, portfolio behavior, Portefeuilles optimaux, demandes de couverture, dérivées de Malliavin, solutions explicites, variables d'état multiples, couverture de taux d'intérêt, couverture de prix du risque de marché, simulation de Monte Carlo, transformation de Doss, comportement des portefeuilles

Frontoparietal action-oriented codes support novel task set implementation

A key aspect of human cognitive flexibility concerns the ability to rapidly convert complex symbolic instructions into novel behaviors. Previous research proposes that this fast configuration is supported by two differentiated neurocognitive states, namely, an initial declarative maintenance of task knowledge, and a progressive transformation into a pragmatic, action-oriented state necessary for optimal task execution. Furthermore, current models predict a crucial role of frontal and parietal brain regions in this transformation. However, direct evidence for such frontoparietal formatting of novel task representations is still lacking. Here, we report the results of an fMRI experiment in which participants had to execute novel instructed stimulus-response associations. We then used a multivariate pattern-tracking procedure to quantify the degree of neural activation of instructions in declarative and procedural representational formats. This analysis revealed, for the first time, format-unique representations of relevant task sets in frontoparietal areas, prior to execution. Critically, the degree of procedural (but not declarative) activation predicted subsequent behavioral performance. Our results shed light on current debates on the architecture of cognitive control and working memory systems, suggesting a contribution of frontoparietal regions to output gating mechanisms that drive behavior

CP-violating top quark couplings at future linear e+e−e^+e^- colliders

We study the potential of future lepton colliders to probe violation of the CP symmetry in the top quark sector. In certain extensions of the Standard Model, such as the two-Higgs-doublet model (2HDM), sizeable anomalous top quark dipole moments can arise, that may be revealed by a precise measurement of top quark pair production. We present results from detailed Monte Carlo studies for the ILC at 500~\GeV{} and CLIC at 380~\gev{} and use parton-level simulations to explore the potential of high-energy operation. We find that precise measurements in $e^+e^- \rightarrow t\bar{t}$ production with subsequent decay to lepton plus jets final states can provide sufficient sensitivity to detect Higgs-boson-induced CP violation in a viable two-Higgs-doublet model. The potential of a linear $e^+e^-$ collider to detect CP-violating electric and weak dipole form factors of the top quark exceeds the prospects of the HL-LHC by over an order of magnitude

Régulation et mode de gestion : une étude économétrique sur les prix et la performance

We model the interactions between the management mode and costs of water services in order to compare their performances and pricing. We estimate those models on French panel data. We find that the choice by the local authority depends on the service costs and characteristics. There is no difference of productive efficiency but of network performance. Margins are explained by service and contract (delegated management) characteristics. Nous modélisons les interactions entre mode de gestion et coûts des services d'eau afin de comparer leurs performances et la tarification. Nous estimons ces modèles sur des données de panel en France. Nous trouvons que le choix de la collectivité locale dépend des coûts et des caractéristiques des services. Il n'y a pas de différences d'efficacité productive mais de performance de réseau. Les marges sont expliquées par les caractéristiques des services et du contrat (en gestion déléguée).water services, management mode, selection model, cost function, pricing, panel data, services d'eau potable, mode de gestion, modèle de sélection, fonction de coût, tarification, données de panel

Régulation et mode de gestion : une étude économétrique sur les prix et la performance dans le secteur de l'eau potable

We model the interactions between management regimes (municipal vs. delegated) and operating costs of water supply services in order to compare their performance and pricing. We estimate the models from panel data in France. We show that the choice between management regimes at the local community level depends on costs and service characteristics, that there is a significant difference in average productive efficiency in favor of delegated services, and that municipal services appear more efficient in network returns. Under delegation, the margins realized by operators depend on service and contract characteristics.water supply services, management regime, selection model, cost function, pricing, panel data