Despite the growing interest in secondary state efforts to avoid choosing sides in great power competition, International Relations scholars have paid scant attention to the question of how great powers respond to secondary state ‘hedging’. We offer a first approximation for this important question by focusing on ‘high-value’ hedgers, i.e. secondary states whose location or capabilities afford them the potential to tip the scales in a great power war. We posit that great powers are likely to accommodate high-value hedgers and refrain from trying to manipulate their alignment choice. This is because the likelihood and costs of losing a high-value hedger are such that competing great powers would rather be safe than sorry. Concretely, we expect established and rising great powers to (re)assure high-value hedgers: the former by demonstrating their commitment to a regional balance of power, and the latter by showing they harbour no ill intent towards the hedging secondary state. To probe our argument, we examine how Great Britain and Germany responded to Dutch hedging in the early 20th century, and how the United States and China are responding to Singapore’s hedging today.

Is it possible to achieve almost riskless, nonfluctuating investment payoffs in the long run, at a fraction of the traditional funding requirement, using equity investments? What is their shortfall risk? These questions are motivated by the need to increase yields, while limiting the variability of investment results. We show how to use contingent claims, denominated in units of a stock index, to achieve an almost riskless investment outcome. To control the risk of the proposed hedge portfolios, we introduce an overfunded scheme and show its reliability using bootstrapping. Results show that a modest amount of overfunding is an effective risk-management approach that brings the probability of not achieving the target to less than 1 percent. Our results are based on the use of the minimal market model and a change of numeraire. Robustness tests support their validity under different market specifications.

Although potentially useful for financially hedging systemic weather-related risks, weather contracts/derivatives (also referred to as parametric insurance) have not seen wide adoption in agriculture outside of applications in developing countries, frequently supported by governments and non-governmental organizations (NGOs). A significant impediment is the lack of financial firms willing to stand ready to sell weather derivatives to individual agricultural producers in the over-the-counter market who, due to the localized nature of weather, face idiosyncratic weather-related risks. In particular, the administrative and reinsurance costs of supplying relatively small contracts with specific terms to many different producers are often prohibitive. The current study considers the potential use of weather derivatives in hedging the aggregate yield/revenues of viticulture producers represented by an industry association located in the province of Ontario, Canada. We examine the sensitivity of aggregate industry yields to several relevant weather-related risks employing copula function analysis. We then consider the potential of a weather derivative in hedging the financial risk associated with cold winter temperatures, which pose the greatest risk to aggregate vinifera yields. The issue of attributing costs and payouts to individual association members remains unresolved, and several alternatives are suggested.

Frederick, Levis, Malliaris & Meyer (2018) report a package of laboratory studies where participants underestimate the value of “hedges”: Risky bets which cancel out the risk of another presently-held bet. However, it might be questioned to what extent laboratory findings predict field behavior. People might better understand hedges when more money is at stake, or when they have more time to reflect. We discuss three gamblers who, instead of hedging, used a costly “cash-out” option to eliminate the risk of their bets on Leicester FC’s improbable victory in the 2015/2016 English Premier League soccer season. The decision to cash-out rather than to hedge led to individual losses of up to £8,000, and did not seem plausibly explained by rational economic factors. High-stakes hedges are misunderstood too.

This paper proposes a shift in the valuation and production of long-term annuities, away from the classical risk-neutral methodology towards a methodology using the real-world probability measure. The proposed production method is applied to three examples of annuity products, one having annual payments linked to a mortality index and the savings account and the others having annual payments linked to a mortality index and an equity index with a guarantee that is linked to the same mortality index and the savings account. Out-of-sample hedge simulations demonstrate the effectiveness of the proposed less-expensive production method. In contrast to classical risk-neutral production, which revolves around the savings account as reference unit, the long-term best-performing portfolio, the numéraire portfolio of the equity market, is employed as the fundamental reference unit in the production of the annuity. The numéraire portfolio is the strictly positive, tradable portfolio that when used as denominator or benchmark makes all benchmarked non-negative portfolios supermartingales. Under real-world valuation, the initial benchmarked value of a benchmarked contingent claim equals its real-world conditional expectation. The proposed real-world valuation and production can lead to significantly lower values of long-term annuities and their less-expensive production than suggested by the risk-neutral approach.

This paper revisits and fine-tunes a spin-off from Knight's (1921, Risk, Uncertainty and Profit) influential distinction between risk (‘probability of unknown events’) and uncertainty (‘unquantifiable randomness’): the contrast between actuarial institutions and entrepreneurship. It contends that this opposition is not exclusive and argues that the act of insurance does not automatically reduce entrepreneurial profits. To maintain this claim, the paper emphasizes hedging and, more specifically, draws on an innovative actuarial scheme – parametric (or index-based) insurance – which, unlike indemnity-based insurance, does not rely on a damage assessment but indemnifies the policyholder according to the variation of an index. This argument sheds new light on the function habitually assigned to actuarial institutions, amends the theory of entrepreneurial profits, and integrates hedging within entrepreneurial judgment.

This article examines evidentiality in the frame of inferential adverbs in written interaction from the perspective of Finnish, a language that does not have evidentiality as a grammatical category. The analysis focuses on six adverbs, such as käsittääkseni ‘as far as I understand’ and tietääkseni ‘to my knowledge, as far as I know’. Evidentiality and epistemic modality intertwine in their semantics, as these adverbs represent a writer’s access to information, but also indicate her evaluation of its reliability. First, this article offers a description of the interactional functions of these adverbs such as marking a writer’s opinion in contrasts, expressing slight hedging in order to anticipate corrections, to allow space for other opinions, or to create irony. Second, in the framework of cognitive grammar, the analysis focuses on the meaning of the evidential verb+kseni construction and the effect of different verb stems on it. These adverbs share similar functions in texts, which is due to their flexible constructional meaning. While varying from lexeme to lexeme, specific evidential and epistemic dimensions can either be foregrounded and relevant in a situation or remain backgrounded and not activated.

Financial products are priced using risk-neutral expectations justified by hedging portfolios that (as accurate as possible) match the product’s payoff. In insurance, premium calculations are based on a real-world best-estimate value plus a risk premium. The insurance risk premium is typically reduced by pooling of (in the best case) independent contracts. As hybrid life insurance contracts depend on both financial and insurance risks, their valuation requires a hybrid valuation principle that combines the two concepts of financial and actuarial valuation. The aim of this paper is to present a novel three-step projection algorithm to valuate hybrid contracts by decomposing their payoff in three parts: a financial, hedgeable part, a diversifiable actuarial part, and a residual part that is neither hedgeable nor diversifiable. The first two parts of the resulting premium are directly linked to their corresponding hedging and diversification strategies, respectively. The method allows for a separate treatment of unsystematic, diversifiable mortality risk and systematic, aggregate mortality risk related to, for example, epidemics or population-wide improvements in life expectancy. We illustrate our method in the case of CAT bonds and a pure endowment insurance contract with profit and compare the three-step method to alternative valuation operators suggested in the literature.

Mirative expressions, which mark surprising information (DeLancey 1997), are often expressed through linguistic forms that are also used to encode other, seemingly unrelated, meanings – e.g. evidential markers that mark lack of direct evidence (Turkish: Slobin & Aksu 1982, Peterson 2010; Cheyenne: Rett & Murray 2013; Cuzco Quechua: Faller 2002; Ostyak: Nikolaeva 1999; among others). In this paper, we show that the English particle like features a parallel polysemy between a mirative use and its better-known hedging use, which expresses weakened commitment to the strict denotation of a linguistic expression. After presenting several diagnostics that point to a genuine empirical difference between the hedging and mirative functions of like, we propose that both uses widen the size of a contextually restricted set, admitting elements that were previously excluded. More specifically, hedging like expands the set of ‘similar enough’ interpretations that we can apply to a linguistic expression in a context, including interpretations that we would normally consider to be too different from the context at hand. Mirative like, on the other hand, expands the set of worlds that we are willing to consider as candidates for the actual world in the conversation, resulting in the inclusion of worlds that interlocutors have previously ruled out due to perceived outlandishness. We therefore suggest that the two uses are best treated as sharing a common semantic kernel, deriving hedging and mirativity as effects of the particular type of object to which like applies.