Journal of Risk Finance: Volume 1 Issue 4

Memoryless Trading

WILLIAM ECKHARDT, NICHOLAS G. POLSON

An optimal investment strategy is “memoryless,” because it depends on present and expected future conditions, but not on the past. This article discusses the conditions required…

Actuarial versus Financial Pricing of Insurance

PAUL EMBRECHTS

This article discusses issues common to the pricing of both insurance and finance. These include increasing collaboration between insurance companies and banks, deregulation of…

On the Basis Risk of Industry Loss Warranties

LIXIN ZENG

Industry loss index‐based risk transfer and management instruments such as the industry loss warranty (ILW) and other catastrophe insurance derivative products have proliferated…

Price Discovery and Energy Risk, or How Futures Contracts Are Changing the Energy Markets Forever: The Case of the New York Mercantile Exchange

DANIEL RAPPAPORT

Fundamentally, a commodity exchange, such as the New York Mercantile Exchange, serves a dual purpose. The first is hedging price risk, in which the exchange offers a fair and…

Estimating Value at Risk: A Subjective Approach

KEVIN DOWD

This article outlines a subjective approach to estimating value at risk (VaR) and its related confidence intervals based on priors of the profit/loss distribution and its…

Changing Regulatory Capital to Include Liquidity and Management Intervention

CHRIS MARRISON, TIL SCHUERMANN, JOHN D. STROUGHAIR

Since 1996, the Bank for International Setdements (BIS) has set the capital level that banks must hold against market risks by a specific formula. This article presents a…

An Empirical Assessment of a Simple Contingent‐Claims Model for the Valuation of Risky Debt

JEFFREY R. BOHN

In this second installment, the author addresses some of the problems associated with empirically validating contingent‐claim models for valuing risky debt. The article uses a…