On the Pricing of Intermediated Risks: Theory and Application to Catastrophe Reinsurance

We model the equilibrium price and quantity of risk transfer between firms and financial intermediaries. Value-maximizing firms have downward sloping demands to cede risk, while intermediaries, who assume risk, provide less-than-fully-elastic supply. We show that equilibrium required returns will be "high" in the presence of financing imperfections that make intermediary capital costly. Moreover, financing imperfections can give rise to intermediary market power, so that small changes in financial imperfections can give rise to large changes in price. We develop tests of this alternative against the null that the supply of intermediary capital is perfectly elastic. We take the US catastrophe reinsurance market as an example, using detailed data from Guy Carpenter & Co., covering a large fraction of the catastrophe risks exchanged during 1970-94. Our results suggest that the price of reinsurance generally exceeds "fair" values, particularly in the aftermath of large events, that market power of reinsurers is not a complete explanation for such pricing, and that reinsurers' high costs of capital appear to play an important role.

The Risk Tolerance of International Investors

Investor confidence and risk tolerance are important concepts that investors are constantly trying to gauge. Yet these concepts are notoriously hard to measure in practice. Most attempts rely on price or return data, but these run into trouble when trying to disentangle whether an observed price change is attributable to a shift in investor confidence or a change in fundamental value. In this paper, we take an alternative approach by looking at the world-wide holdings and trading of risky assets. We model global capital markets as the interaction between large global institutional investors and smaller domestic investors from each country. This permits separation of global price changes into two components, one that reflects changes in demand and fundamentals perceived by all investors, and a second that reflects changes in the relative risk tolerance of institutional investors over and above that of domestics. The latter component, changes in relative risk tolerance of global institutions, is driven by the willingness of these investors to acquire additional assets in each country in proportion to their current holdings. Using our model, we show how data on asset holdings and flows across countries can be used to identify changes in risk tolerance. We then apply this identification scheme to recent data on the global portfolio holdings of institutional investors. The resulting measure of risk tolerance impressionistically accords well with periods of market turbulence and quiescence. It also accounts for a considerable portion of the variation in portfolio holdings and is informative about future returns.

Aid dependence reconsidered

If foreign aid undermines institutional development, aid recipients can exhibit the symptoms of “dependence”-a short-run benefit from aid, but increasing need for aid that is damaging in the long run. We show that this high-aid/weakinstitutions state can be an equilibrium outcome even when donors and recipients fully anticipate the effect of aid on institutional development. However, a lowaid/ strong-institutions outcome is also possible, so that the model encompasses the diverse foreign-aid experiences of countries like the Republic of Korea and Tanzania. When the development community ignores the effect of aid on institutions, the outcome depends strongly on initial conditions. Where institutions are already weak, institutional capacity collapses and foreign aid eventually finances the entire public budget. Where they are initially stronger, the result can be close to the institutionssensitive equilibrium. The results suggest that foreign aid strategies, even for countries with similar per capita incomes, should be differentiated according to their institutional capacity; and that a short-run reduction in aid may increase a country’s chances of graduating from aid.

Aid dependence reconsidered

When foreign aid undermines institutional development aid recipients can exhibit the symptoms of aid"dependence"- benefiting from aid in the short term but damaged by it in the long term. The authors find that one equilibrium outcome can be high aid and weak institutions, even when donors and recipients fully anticipate aid's effects on institutional development, but don't take the drastic steps needed to put the country on the path to independence. Another equilibrium outcome can be low aid and strong institutions. Their model encompasses such diverse experiences as those of Tanzania and the Republic of Korea. When the development community ignores aid's effect on institutions, the outcome depends greatly on initial conditions. Where institutions are initially weak (as in many Sub-Saharan African countries at independence), institutional capacity collapses and foreign aid eventually finances the whole public budget. Where they are initially stronger, the result can be close to the institutions-sensitive equilibrium. The results suggest that, even for countries with similar per capita income, the foreign aid strategy should be designed to suit the country's institutional capacity. In some cases a short-term reduction in aid may increase a country's chances of graduating from aid.Development Economics&Aid Effectiveness,School Health,Gender and Development,Economic Theory&Research,Public Sector Economics&Finance,Poverty Assessment,Development Economics&Aid Effectiveness,Economic Theory&Research,School Health,National Governance

Lectin based glycoprotein analysis

Many of the biopharmaceutical therapeutics entering the market and currently in clinical trails are recombinant glycoprotein molecules, the glycan moieties of which have a significant impact on efficacy and immunogenicity. The cell culture techniques required to produce these glycoproteins often result in products that are heterogeneous with respect to glycan content. This inconsistency ultimately leads to increased production costs and restricts patient accessibility to these therapeutics. To overcome these difficulties novel analytical platforms facilitating rapid in-process monitoring and product quality control are essential. Work undertaken within the Centre for Bioanalytical Sciences (CBAS) seeks to exploit the microbial world as a source of novel biorecognition elements to produce such platforms

Production of lectin-affinity matrices for process-scale glycoprotein purification

A selection of prokaryotic lectins with a variety of glycan specificities and affinities have been identified, cloned, expressed in Eschericia coli and characterised. The aims of this project are to: - express the lectins at 1L scale to produce sufficient quantities for immobilisation studies (~100 mg) - immobilisethelectinsonSepharose - evaluate lectin performance on column by monitoring their ability toreproducibly capture and elute glycoprotein glycoforms

Exploiting prokaryotic chitin-binding proteins for glycan recognition

• The cloning, expression and characterisation of prokaryotic chitin-binding proteins from Serratia marcescens, Pseudomonas aeruginosa, Photorhabdus luminescens Microfluidics and Photorhabdus asymbiotica • Development of an assay to assess the activity of chitin-binding proteins • Mutagenesis of chitin-binding proteins to alter glycan recognition pattern

Genetically enhanced recombinant lectins for glyco-selective analysis and purification

- Generation of a library of recombinant prokaryotic lectins (RPL’s) through random mutagenesis of the carbohydrate binding sites of bacterial lectins. - Characterisation of mutant lectins with respect to structure and specificity - Provision of mutant RPL’s with enhanced affinity and/or altered specificity, alongside wild-type RPL’s, for glycoprotein analysis and purificatio

Regions of the Cry1Ac toxin predicted to be under positive selection are shown to be the carbohydrate binding sites and can be altered in their glycoprotein target specificity

The cry gene family, is a large family of homologous genes from Bacillus thuringiensis. Studies have examined the structural and functional relationships of the Cry proteins. They have revealed several residues in domains II and III that are important for target recognition and receptor attachment. In 2007 Wu, Jin-Yu et al employed a maximum likelihood method to detect evidence of adaptive evolution in Cry proteins. They identified positively selected residues, which are all located in Domain II or III. Figure 1 shows a protein sequence alignment between domain II and III of Cry1Ac and Cry1Aa. This highlights the areas which are thought to be under positive selection. Cry1Ac and Cry1Aa are structurally very similar and they both bind to a variety of N-aminopeptidases (APN’s) in different insect species. However Cry1Aa has a higher specificity for the cadherin like receptor HevCalP and Cry1Ac binds to N-acetylgalactosamine (GalNAc) on the surface of APN’s. Differences in the binding of the two toxins has been shown in an in-direct toxin-binding assay where GalNAc completely abolished toxin binding of Cry1Ac but had no effect on the binding of Cry1Aa. The binding site has been shown to be located in the third domain of Cry1Ac. Some of these sites correlate with the positively selected residues found by Wu et al 2007 in Cry1Aa. Our aim was to use the comparison of the toxins to analyse the potential to alter the binding specificity of Cry1Ac and its domains. In this work we identified critical amino acid residues for this objective