Derivatives and corporate risk management: participation and volume decisions in the insurance industry

In this paper we formulate and test a number of hypotheses regarding insurer participation and volume decisions in derivatives markets. Several specific hypotheses are supported by our analysis. We find evidence consistent with the idea that insurers are motivated to use financial derivatives to hedge the costs of financial distress, interest rate, liquidity, and exchange rate risks. We also find some evidence that insurers use these instruments to hedge embedded options and manage their tax bills. We also find evidence of significant economies of scale in the use of derivatives. Interestingly, we often find that the predetermined variables we employ display opposite signs in the participation and volume regressions. We argue that this result is broadly consistent with the hypothesis that there is also a per unit premium associated with hedging and that, conditional on having risk exposures large enough to warrant participation, firms with a larger appetite for risk will be less willing than average to pay this marginal cost.Corporations - Finance ; Derivative securities ; Financial services industry ; Business enterprises

Derivatives and Corporate Risk Management: Participation and Volume Decisions in the Insurance Industry

The use of derivatives in corporate risk management has grown rapidly in recent years. In this paper, the authors explore the factors that influence the use of financial derivatives in the U.S. insurance industry. Their objective is to investigate the motivations for corporate risk management The authors use regulatory data on individual holdings and transactions in derivative markets. According to modern finance theory, shares of widely held corporations are held by diversified investors who operate in frictionless and complete markets and eliminate non-systematic risk through their portfolio choices. But this theory has been challenged by new hypotheses that take into account market imperfections, information asymmetries and incentive conflicts as motivations for corporate managers to change the risk/return profile of their firm. The authors develop a set of hypotheses regarding the hedging behavior of insurers and perform tests on a sample of life and property-liability insurers to test them. The sample consists of all U.S. life and property-liability insurers reporting to the NAIC. The authors investigate the decision to conduct derivatives transactions and the volume of transactions undertaken. There are two primary theories about the motivations for corporate risk management - maximization of shareholder value and maximization of managerial utility. The authors discuss these theories, the hypotheses they develop from them , and specify variables to test their hypotheses. They posit the following rationales for why corporations may choose to engage in risk management and also specify variables that help them study the use of these rationales by insurance firms: to avoid the costs of financial distress; to hedge part of their investment default/volatility/liquidity risks; to avoid shocks to equity that result in high leverage ratios; to minimize taxes and enhance firm value by reducing the volatility of earnings; to maximize managerial utility. The authors argue that the use of derivatives for speculative purposes in the insurance industry is not common. The authors analyze the decision by insurers to enter the market and their volume of transactions. They use probit analysis to study the participation decision and Tobit analysis along with Cragg's generalization of the Tobit analysis to study volume. The results provide support for the authors' hypothesis that insurers hedge to maximize shareholder value. The analysis provides only weak support for the managerial utility hypothesis. Insurers are motivated to use financial derivatives to reduce the expected costs of financial distress. There is also evidence that insurers use derivatives to hedge asset volatility and exchange rate risks. There is also evidence that there are significant economies of scale in running derivatives operations - only large firms and/or those with higher than average risk exposure find it worthwhile to pay the fixed cost of setting up a derivatives operation. Overall, insurers with higher than average asset risk exposures use derivative securities.

Asymptotic behaviour of tests for a unit root against an explosive alternative

We compare the asymptotic local power of upper-tail unit root tests against an explosive alternative based on ordinary least squares (OLS) and quasi-differenced (QD) demeaning/detrending. We find that under an asymptotically negligible initialisation, the QD-based tests are near asymptotically efficient and generally offer superior power to OLS-based approaches; however, the power gains are much more modest than in the lower-tail testing context. We also find that asymptotically non-negligible initial conditions do not affect the power ranking in the same way as they do for lower-tail tests, with the QD-based tests retaining a power advantage in such cases

Interannual, seasonal, and diel variation in soil respiration relative to ecosystem respiration at a wetland to upland slope at Harvard Forest

Soil carbon dioxide efflux (soil respiration, SR) was measured with eight autochambers at two locations along a wetland to upland slope at Harvard Forest over a 4 year period, 2003–2007. SR was consistently higher in the upland plots than at the wetland margin during the late summer/early fall. Seasonal and diel hystereses with respect to soil temperatures were of sufficient magnitude to prevent quantification of the influence of soil moisture, although apparent short‐term responses of SR to precipitation occurred. Calculations of annual cumulative SR illustrated a decreasing trend in SR over the 5 year period, which were correlated with decreasing springtime mean soil temperatures. Spring soil temperatures decreased despite rising air temperatures over the same period, possibly as an effect of earlier leaf expansion and shading. The synchronous decrease in spring soil temperatures and SR during regional warming of air temperatures may represent a negative feedback on a warming climate by reducing CO2 production from soils. SR reached a maximum later in the year than total ecosystem respiration (ER) measured at a nearby eddy covariance flux tower, and the seasonality of their temperature response patterns were roughly opposite. SR, particularly in the upland, exceeded ER in the late summer/early fall in each year, suggesting that areas of lower efflux such as the wetland may be significant in the flux tower footprint or that long‐term bias in either estimate may create a mismatch. Annual estimates of ER decreased over the same period and were highly correlated with SR

1D convolutional neural networks for detecting nystagmus

Vertigo is a type of dizziness characterised by the subjective feeling of movement despite being stationary. One in four individuals in the community experience symptoms of dizziness at any given time, and it can be challenging for clinicians to diagnose the underlying cause. When dizziness is the result of a malfunction in the inner-ear, the eyes flicker and this is called nystagmus. In this article we describe the first use of Deep Neural Network architectures applied to detecting nystagmus. The data used in these experiments was gathered during a clinical investigation of a novel medical device for recording head and eye movements. We describe methods for training networks using very limited amounts of training data, with an average of 11 mins of nystagmus across four subjects, and less than 24 hours of data in total, per subject. Our methods work by replicating and modifying existing samples to generate new data. In a cross-fold validation experiment, we achieve an average F1 score of 0.59 (SD = 0.24) across all four folds, showing that the methods employed are capable of identifying periods of nystagmus with a modest degree of accuracy. Notably, we were also able to identify periods of pathological nystagmus produced by a patient during an acute attack of Ménière's Disease, despite training the network on nystagmus that was induced by different means

An investigation into the diagnostic accuracy, reliability, acceptability and safety of a novel device for Continuous Ambulatory Vestibular Assessment (CAVA)

Dizziness is a common condition that is responsible for a significant degree of material morbidity and burden on health services. It is usually episodic and short-lived, so when a patient presents to their clinician, examination is normal. The CAVA (Continuous Ambulatory Vestibular Assessment) device has been developed to provide continuous monitoring of eye-movements, allowing insight into the physiological parameters present during a dizziness attack. This article describes the first clinical investigation into the medical and technical aspects of this new diagnostic system. Seventeen healthy subjects wore the device near continuously for up to thirty days, artificially inducing nystagmus on eight occasions. 405 days’ worth of data was captured, comprising around four billion data points. A computer algorithm developed to detect nystagmus demonstrated a sensitivity of 99.1% (95% CI: 95.13% to 99.98%) and a specificity of 98.6% (95% CI: 96.54% to 99.63%). Eighty-two percent of participants wore the device for a minimum of eighty percent of each day. Adverse events were self-limiting and mostly the consequence of skin stripping from the daily replacement of the electrodes. The device was shown to operate effectively as an ambulatory monitor, allowing the reliable detection of artificially induced nystagmus

Adaptive foveated single-pixel imaging with dynamic super-sampling

As an alternative to conventional multi-pixel cameras, single-pixel cameras enable images to be recorded using a single detector that measures the correlations between the scene and a set of patterns. However, to fully sample a scene in this way requires at least the same number of correlation measurements as there are pixels in the reconstructed image. Therefore single-pixel imaging systems typically exhibit low frame-rates. To mitigate this, a range of compressive sensing techniques have been developed which rely on a priori knowledge of the scene to reconstruct images from an under-sampled set of measurements. In this work we take a different approach and adopt a strategy inspired by the foveated vision systems found in the animal kingdom - a framework that exploits the spatio-temporal redundancy present in many dynamic scenes. In our single-pixel imaging system a high-resolution foveal region follows motion within the scene, but unlike a simple zoom, every frame delivers new spatial information from across the entire field-of-view. Using this approach we demonstrate a four-fold reduction in the time taken to record the detail of rapidly evolving features, whilst simultaneously accumulating detail of more slowly evolving regions over several consecutive frames. This tiered super-sampling technique enables the reconstruction of video streams in which both the resolution and the effective exposure-time spatially vary and adapt dynamically in response to the evolution of the scene. The methods described here can complement existing compressive sensing approaches and may be applied to enhance a variety of computational imagers that rely on sequential correlation measurements.Comment: 13 pages, 5 figure

Four-month moxifloxacin-based regimens for drug-sensitive tuberculosis

Supported by the Global Alliance for TB Drug Development with support from the Bill and Melinda Gates Foundation, the European and Developing Countries Clinical Trials Partnership, U.S. Agency for International Development, U.K. Department for International Development, Directorate General for International Cooperation of the Netherlands, Irish Aid, Australia Department of Foreign Affairs and Trade, and National Institutes of Health, AIDS Clinical Trials Group and by grants from the National Institute of Allergy and Infectious Diseases (NIAID) (UM1AI068634, UM1 AI068636, and UM1AI106701) and by NIAID grants to the University of KwaZulu Natal, South Africa, AIDS Clinical Trials Group (ACTG) site 31422 (1U01AI069469); to the Perinatal HIV Research Unit, Chris Hani Baragwanath Hospital, South Africa, ACTG site 12301 (1U01AI069453); and to the Durban International Clinical Trials Unit, South Africa, ACTG site 11201 (1U01AI069426); Bayer Healthcare for the donation of moxifloxacin; and Sanofi for the donation of rifampin.Background: Early-phase and preclinical studies suggest that moxifloxacin-containing regimens could allow for effective 4-month treatment of uncomplicated, smear-positive pulmonary tuberculosis. Methods: We conducted a randomized, double-blind, placebo-controlled, phase 3 trial to test the noninferiority of two moxifloxacin-containing regimens as compared with a control regimen. One group of patients received isoniazid, rifampin, pyrazinamide, and ethambutol for 8 weeks, followed by 18 weeks of isoniazid and rifampin (control group). In the second group, we replaced ethambutol with moxifloxacin for 17 weeks, followed by 9 weeks of placebo (isoniazid group), and in the third group, we replaced isoniazid with moxifloxacin for 17 weeks, followed by 9 weeks of placebo (ethambutol group). The primary end point was treatment failure or relapse within 18 months after randomization. Results: Of the 1931 patients who underwent randomization, in the per-protocol analysis, a favorable outcome was reported in fewer patients in the isoniazid group (85%) and the ethambutol group (80%) than in the control group (92%), for a difference favoring the control group of 6.1 percentage points (97.5% confidence interval [CI], 1.7 to 10.5) versus the isoniazid group and 11.4 percentage points (97.5% CI, 6.7 to 16.1) versus the ethambutol group. Results were consistent in the modified intention-to-treat analysis and all sensitivity analyses. The hazard ratios for the time to culture negativity in both solid and liquid mediums for the isoniazid and ethambutol groups, as compared with the control group, ranged from 1.17 to 1.25, indicating a shorter duration, with the lower bounds of the 95% confidence intervals exceeding 1.00 in all cases. There was no significant difference in the incidence of grade 3 or 4 adverse events, with events reported in 127 patients (19%) in the isoniazid group, 111 (17%) in the ethambutol group, and 123 (19%) in the control group. Conclusions: The two moxifloxacin-containing regimens produced a more rapid initial decline in bacterial load, as compared with the control group. However, noninferiority for these regimens was not shown, which indicates that shortening treatment to 4 months was not effective in this setting. (Funded by the Global Alliance for TB Drug Development and others; REMoxTB ClinicalTrials.gov number, NCT00864383.)Publisher PDFPeer reviewe

Coarse-grained meandering distributive fluvial system of the Basal Cedar mountain formation, U.S.A.

Funding Information: We thank the following for reviews of this manuscript: Associate Editor Tobi Payenberg, Matt Joeckel, two anonymous reviewers, and John Southard. This work was funded by the SAFARI group. We are deeply grateful to Joe Phillips, Sean Kelly, James Mullins, Ryan King, and Jostein Myking Kjærefjord for help in the field.Peer reviewedPostprin