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7 results

  • 9 - Risk management

  • Anthony Papavasiliou, National Technical University of Athens
  • Book:
    Optimization Models in Electricity Markets
    Published online:
    09 January 2025
    Print publication:
    13 June 2024, pp 207-231

  • Summary

    This chapter defines forward contracts and future contracts, and discusses their advantages as well as their fair market price. Other instruments such as power purchase agreements (PPAs) and contracts for differences (CfDs) are defined. Financial transmission rights (FTRs) are defined and their role in managing risk on networks is discussed. FTR auctions and revenue adequacy are discussed. Call options and callable forward contracts are defined, and their role in enabling demand response is discussed, as well as their pricing. The modeling of risk aversion through risk measures is discussed. Coherent risk measures are defined. Value at risk and conditional value at risk are defined. The worst-case characterization of coherent risk measures through risk-adjusted probability measures is developed. This allows us to quantitatively formalize the back-propagation of prices to forward markets. The representation of risk through utility functions and the specific application of Markowitz risk measures is covered.

  • 4 - Final Demand in a CGE Model

  • Mary E. Burfisher, Purdue University, Indiana
  • Book:
    Introduction to Computable General Equilibrium Models
    Published online:
    11 December 2020
    Print publication:
    07 January 2021, pp 108-144

  • Summary

    In this chapter, we describe final demand by domestic agents – private households, government, and investors – and by the export market. Data in the Social Accounting Matrix (SAM) describe agents’ incomes and the commodity composition of their spending. The computable general equilibrium (CGE) model depicts demand by domestic agents as a three-stage decision. First, consumers decide on the quantities of each commodity in their consumption basket. Second, an “Armington” import aggregation function describes their choice between domestic and imported varieties of each commodity. In some CGE models, a third stage describes the sourcing of imports. We survey functional forms commonly used in CGE models to describe private household preferences. We also introduce the concept of “national welfare,” which is the monetary value of changes in a nation’s well-being following an economic shock.

  • Permutation Monotone Functions of Random Vectors with Applications in Financial and Actuarial Risk Management

  • Part of
  • Xiaohu Li, Yinping You
  • Journal:
    Advances in Applied Probability / Volume 47 / Issue 1 / March 2015
    Published online by Cambridge University Press:
    04 January 2016, pp. 270-291
    Print publication:
    March 2015
    • Article
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  • In this paper we develop two permutation theorems on argument increasing functions of a multivariate random vector and a real parameter vector. We use the unified approach of our two theorems to provide some important theoretical results on the capital allocation in actuarial science, the deductible and upper limit allocations in insurance policy, and portfolio allocation in financial engineering. Our results successfully improve or extend the corresponding works in the literature.

  • Calculation of Price Equilibria for Utility Functions of the HARA Class

  • Markus Lienhard
  • Journal:
    ASTIN Bulletin: The Journal of the IAA / Volume 16 / Issue S1 / April 1986
    Published online by Cambridge University Press:
    29 August 2014, pp. S91-S97
    Print publication:
    April 1986
    • Article
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  • We explicitly calculate price equilibria for power and logarithmic utility functions which—together with the exponential utility functions—form the so-called HARA (Hyperbolic Absolute Risk Aversion) class.

    A price equilibrium is economically admissible in the market which is a closed system. Furthermore it is on the one side individually optimal for each participant of the market (in the sense of maximal expected utility), on the other side it is a Pareto optimum and thus collectively optimal for the market as a whole.

  • The Reinsurer's Monopoly and the Bowley Solution

  • Fung-Yee Chan, Hans U. Gerber
  • Journal:
    ASTIN Bulletin: The Journal of the IAA / Volume 15 / Issue 2 / November 1985
    Published online by Cambridge University Press:
    29 August 2014, pp. 141-148
    Print publication:
    November 1985
    • Article
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  • The reinsurer has a monopoly in the following sense: He will select a random variable P that determines the reinsurance premiums. The first insurer can purchase a payment of R (a random variable) for a premium of π = E[PR]. For known P, the first insurer chooses R to maximize his expected utility. Knowing this, i.e., the demand for reinsurance as a function of P, the reinsurer chooses P to maximize his utility. The resulting pair (P, R) is called the Bowley solution. Assuming exponential, quadratic and/or linear utility functions, some explicit results are obtained.