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.

Increased Productivity of a Cover Crop Mixture Is Not Associated with Enhanced Agroecosystem Services

Cover crops provide a variety of important agroecological services within cropping systems. Typically these crops are grown as monocultures or simple graminoid-legume bicultures; however, ecological theory and empirical evidence suggest that agroecosystem services could be enhanced by growing cover crops in species-rich mixtures. We examined cover crop productivity, weed suppression, stability, and carryover effects to a subsequent cash crop in an experiment involving a five-species annual cover crop mixture and the component species grown as monocultures in SE New Hampshire, USA in 2011 and 2012. The mean land equivalent ratio (LER) for the mixture exceeded 1.0 in both years, indicating that the mixture over-yielded relative to the monocultures. Despite the apparent over-yielding in the mixture, we observed no enhancement in weed suppression, biomass stability, or productivity of a subsequent oat (Avena sativa L.) cash crop when compared to the best monoculture component crop. These data are some of the first to include application of the LER to an analysis of a cover crop mixture and contribute to the growing literature on the agroecological effects of cover crop diversity in cropping systems

Cultivar diversity as a means of ecologically intensifying dry matter production in a perennial forage stand

The relationship between genotypic diversity and productivity has not been adequately explored in perennial forage production systems despite strong theoretical and empirical evidence supporting diversity\u27s role in ecosystem functioning in other managed and unmanaged systems. We conducted a two-year field experiment with six cultivars of an agriculturally important forage grass, Lolium perenne L. (perennial ryegrass). Dry matter production of L. perenne and the weed community that emerged from the soil seed bank were measured each year in treatments that ranged from cultivar monocultures to three- and six-way cultivar mixtures, all sown at a constant seeding rate. Mean L. perenne dry matter production increased with increasing cultivar diversity and was highest in mixtures that contained cultivars representing the greatest additive trait range (calculated on rankings of three traits: winter hardiness, heading date, and tolerance to grazing). Mixtures had greater yields than those predicted by the mean of their component monoculture yields, but there was evidence that highly productive cultivars may have dampened over-yielding in mixtures. Weed abundance was correlated with L. perenne dry matter, but not L. perenne cultivar diversity. These results suggest that multi-cultivar mixtures may have utility as an approach to ecologically intensifying perennial forage production. Additional research will be necessary to determine the mechanisms responsible for the over-yielding observed in this study and the generality of these findings

Improving case study research in medical education: A systematised review

Context:Case study research (CSR) is a research approach that guides holistic investigation of a real phenomenon. This approach may be useful in medical education to provide critical analyses of teaching and learning, and to reveal the underlying elements of leadership and innovation. There are variations in the definition, design and choice of methods, which may diminish the value of CSR as a form of inquiry.Objectives:This paper reports an analysis of CSR papers in the medical education literature. The review aims to describe how CSR has been used and how more consistency might be achieved to promote understanding and value.Methods:A systematised review was undertaken to quantify the number of CSR articles published in scholarly medical education journals over the last 10 years. A typology of CSR proposed by Thomas and Myers to integrate the various ways in which CSR is constructed was applied.Results:Of the 362 full‐text articles assessed, 290 were excluded as they did not meet the eligibility criteria; 76 of these were titled ‘case study’. Of the 72 included articles, 50 used single‐case and 22 multi‐case design; 46 connected with theory and 26 were atheoretical. In some articles it was unclear what the subject was or how the subject was being analysed.Conclusions:In this study, more articles titled ‘case study’ failed than succeeded in meeting the eligibility criteria. Well‐structured, clearly written CSR in medical education has the potential to increase understanding of more complex situations, but this review shows there is considerable variation in how it is conducted, which potentially limits its utility and translation into education practice. Case study research might be of more value in medical education if researchers were to follow more consistently principles of design, and harness rich observation with connection of ideas and knowledge to engage the reader in what is most interesting

Probabilistic lower bounds on maximal determinants of binary matrices

Let ${\mathcal D}(n)$ be the maximal determinant for $n \times n$ $\{\pm 1\}$-matrices, and $\mathcal R(n) = {\mathcal D}(n)/n^{n/2}$ be the ratio of ${\mathcal D}(n)$ to the Hadamard upper bound. Using the probabilistic method, we prove new lower bounds on ${\mathcal D}(n)$ and $\mathcal R(n)$ in terms of $d = n-h$, where $h$ is the order of a Hadamard matrix and $h$ is maximal subject to $h \le n$. For example, $\mathcal R(n) > (\pi e/2)^{-d/2}$ if $1 \le d \le 3$, and $\mathcal R(n) > (\pi e/2)^{-d/2}(1 - d^2(\pi/(2h))^{1/2})$ if $d > 3$. By a recent result of Livinskyi, $d^2/h^{1/2} \to 0$ as $n \to \infty$, so the second bound is close to $(\pi e/2)^{-d/2}$ for large $n$. Previous lower bounds tended to zero as $n \to \infty$ with $d$ fixed, except in the cases $d \in \{0,1\}$. For $d \ge 2$, our bounds are better for all sufficiently large $n$. If the Hadamard conjecture is true, then $d \le 3$, so the first bound above shows that $\mathcal R(n)$ is bounded below by a positive constant $(\pi e/2)^{-3/2} > 0.1133$.Comment: 17 pages, 2 tables, 24 references. Shorter version of arXiv:1402.6817v4. Typos corrected in v2 and v3, new Lemma 7 in v4, updated references in v5, added Remark 2.8 and a reference in v6, updated references in v

Economics of Water Quality Protection from Nonpoint Sources: Theory and Practice

Water quality is a major environmental issue. Pollution from nonpoint sources is the single largest remaining source of water quality impairments in the United States. Agriculture is a major source of several nonpoint-source pollutants, including nutrients, sediment, pesticides, and salts. Agricultural nonpoint pollution reduction policies can be designed to induce producers to change their production practices in ways that improve the environmental and related economic consequences of production. The information necessary to design economically efficient pollution control policies is almost always lacking. Instead, policies can be designed to achieve specific environmental or other similarly related goals at least cost, given transaction costs and any other political, legal, or informational constraints that may exist. This report outlines the economic characteristics of five instruments that can be used to reduce agricultural nonpoint source pollution (economic incentives, standards, education, liability, and research) and discusses empirical research related to the use of these instruments.water quality, nonpoint-source pollution, economic incentives, standards, education, liability, research, Environmental Economics and Policy,

Development and validation of the child post-traumatic cognitions inventory (CPTCI)

Background: Negative trauma-related cognitions have been found to be a significant factor in the maintenance of post-traumatic stress disorder (PTSD) in adults. Initial studies of such appraisals in trauma-exposed children and adolescents suggest that this is an important line of research in youth, yet empirically validated measures for use with younger populations are lacking. A measure of negative trauma-related cognitions for use with children and adolescents, the Child Post-Traumatic Cognitions Inventory (CPTCI), is presented. The measure was devised as an age-appropriate version of the adult Post-Traumatic Cognitions Inventory (Foa et al., 1999). Methods: The CPTCI was developed and validated within a large (n = 570) sample, comprising community and trauma-exposed samples of children and adolescents aged 6-18 years. Results: Principal components analysis suggested a two-component structure. These components were labelled 'permanent and disturbing change' and 'fragile person in a scary world', and were each found to possess good internal consistency, test-retest reliability, convergent validity, and discriminative validity. The reliability and validity of these sub-scales was present regardless of whether the measure was completed in the acute phase or several months after a trauma. Scores on these sub-scales did not vary with age. Conclusions: The CPTCI is a reliable and valid measure that is not specific to the type of trauma exposure, and shows considerable promise as a research and clinical tool. The structure of this measure suggests that appraisals concerning the more abstract consequences of a trauma, as well as physical threat and vulnerability, are pertinent factors in trauma-exposed children and adolescents, even prepubescent children