The CIF NOLA “river market” represents an important but opaque forward market that serves Gulf exporters and elevators. CIF NOLA bids function similarly to traditional forward contracts; however, like a futures market, firms can offset their forward contractual obligations by offsetting positions in a liquid off-exchange paper market. Analysis shows grain sellers pay a risk premium for fall harvest delivery contracts. However, outside of fall harvest, contract liquidity, coupled with a good institutional balance of long and short market participants, mostly removes the pricing bias commonly found in farmer forward contracting in corn and soybeans.

Country risk premia can substantially affect macroeconomic dynamics. We concentrate on one of their most important determinants—a country’s net foreign asset (NFA) position and—in contrast to the existing research—investigate its nonlinear link to risk premia. The importance of this particular nonlinearity is two-fold. First, it allows to identify the NFA level above which the elasticity becomes much (possibly dangerously) higher. Second, such a nonlinear relationship is a standard ingredient of dynamic stochastic general equilibrium (DSGE) models, but its proper calibration/estimation is missing. Our estimation shows that indeed the link is highly nonlinear and helps to identify the NFA position where the nonlinearity kicks in at approximately −70% to −75% of GDP. We also provide a proper calibration of the risk premium—NFA relationship which can be used in DSGE models and demonstrate that its slope matters significantly for economic dynamics in such a model.

Weed-suppressive rice cultivars have the potential to reduce heavy reliance on synthetic herbicides in rice production. However, the economics of using weed-suppressive rice cultivars in conventional rice systems have not been fully evaluated. This study uses simulation and stochastic efficiency with respect to a function to rank weed-suppressive and weed-nonsuppressive rice cultivars under alternative herbicide intensity levels based on their certainty equivalents mapped across increasing levels of absolute risk aversion. The results indicate risk-averse rice producers would prefer to grow weed-suppressive cultivars using less herbicide inputs than what would be used to grow weed-nonsuppressive rice cultivars.

This paper focuses on the possibility that financial markets require risk premia on holding sovereign debt of countries that appear vulnerable from a fiscal sustainability perspective. Both the level of debt as well as the rate of change of debt are assumed to impact on the risk premium. We analyze the impact of such an endogenous risk premium in a simple debt game between a monetary and a fiscal player, as introduced by [Tabellini (1986) Journal of Economic Dynamics and Control 10, 427–442]. The risk premium term adds a nonlinearity to the linear model in case risk premia are absent. We analyze outcomes in case of noncooperative open-loop Nash strategies and in case of cooperative strategies and consider the workings of the risk premium as a market-based disciplining device (in case of high debt) and adjustment rewarding device (in case of a declining debt trajectory).

This paper finds strong evidence of a positive relationship between currency risk premia and real exchange rate swings, significant at the 1% if not 0.1% level, for three US$ exchange rate samples. The risk premia are measured using survey data on traders' exchange rate forecasts. This circumvents the need for an auxiliary hypothesis of rationality and enables more direct focus on risk behavior. The analysis is conducted using the I(2) cointegrated VAR, which allows for time-varying trends in the variables. Evidence of persistent changes is found for interest rates, prices, and nominal and real exchange rates. Interest rate shocks appear to drive the system, whereas expectations are correcting only in the longer run.

Empirical tests were made of components of the corn basis in the U.S. utilizing a general theory of intertemporal price relationships for storable commodities. These tests showed that the basis consists of a risk premium, a speculative component, and a maturity basis apart from other factors such as storage costs for storable commodities. The results provide insights into factors affecting basis patterns for corn.

This article examines the time-varying risk premium with reference to investments in fine wines. Unlike previous studies, our article focuses on this issue within the context of the financial crisis. To do this, we propose the use of a conditional capital asset pricing model and a multivariate generalized autoregressive conditional heteroskedasticity model on several appellation wines worldwide. We find that Bordeaux fine wines were more volatile during the financial crisis and are less volatile in non-crisis periods. In addition, while the volatility of Burgundy wines is second only to Bordeaux wines, non-French fine wines (Australia, Italy, and USA) exhibit inverse volatility trends to French fine wines. (JEL Classifications: C50, G01, G11, Q13)

Providers of motor extended warranties with limited usage often face difficulty evaluating the impact of usage limits on warranty price because of incomplete usage data. To address this problem, this paper employs a non-parametric interval-censored survival model of time to accumulate a specific usage. This is used to develop an estimator of the probability that a provider is on risk at a specific time in service. The resulting pricing model is applied to a truck extended warranty case study. The case study demonstrates that interval-censored survival models are ideal for use in pricing motor extended warranties with limited usage cover. The results also suggest that employing a usage rate distribution to forecast the number of vehicles on risk can be misleading, especially on an extended warranty with a relatively high usage limit.

We study the dynamics of risk premia in a model with external habit formation and highlight the significance of “recession predictability”. Although under the specification of Campbell and Cochrane, [Journal of Political Economy 107, 205–251 (1999)] the equity risk premium is countercyclical because increases in risk aversion are reinforced by rising recession risks, this need not be the case more generally. We show analytically that in endowment economies procyclical recession expectations can outweigh countercyclical changes in risk aversion, generating counterfactual risk-premium behavior. However, allowing shocks or habits to be sufficiently persistent, or explicitly accounting for the impact of habits on consumption, suffices to generate countercyclical recession risks and risk premia.

The risk premium on ordinary shares is investigated, by studying the total returns on ordinary shares, and on both long-term and short-term fixed-interest investments over the period 1919 to 1994, and by analysing the various components of that return. The total returns on ordinary shares exceeded those on fixed-interest investments by over 5% p.a. on a geometric mean basis and by over 7% p.a. on an arithmetic mean basis, but it is argued that these figures are misleading, because most of the difference can be accounted for by the fact that price inflation turned out to be about 4.5% p.a. over the period, whereas investors had been expecting zero inflation.

Quotations from contemporary authors are brought forward to demonstrate what contemporary attitudes were. Simulations are used along with the Wilkie stochastic asset model to show what the results would be if investors make various assumptions about the future, but the true model turns out to be different from what they expected. The differences between geometric means of the data and arithmetic means are shown to correspond to differences between using medians or means of the distribution of future returns, and it is suggested that, for discounting purposes, medians are the better measure.

Les anticipations de taux d'intérêt révélées par les enquêtes de Consensus Economies auprès d'experts sur le marché de l'Eurofranc ne vérifient pas l'hypothèse de rationalité. Elles résultent d'un processus mixte fondé sur une complémentarité entre les modèles anticipatifs traditionnels adaptatif, régressif et extrapolatif augmentés d'effets macroéconomiques (prix, revenu, monnaie). En utilisant une représentation espace-état dans le but de rendre compte de la part inobservable de l'actif long dans le portefeuille composé d'un actif long et d'un actif court, on montre que ces anticipations vérifient la relation de structure par terme de taux fondée sur un modèle de choix de portefeuille. Conformément aux prédictions du modèle, la prime de risque dépend de la variance conditionnelle attendue du taux court et de la cova-riance conditionnelle attendue entre ce dernier et l'inflation, avec une valeur estimée du coefficient d'aversion relative au risque économiquement acceptable. Dans l'ensemble, ces résultats montrent qu'il y a compatibilité entre le modèle de structure de taux et les anticipations des experts.

The estimation of risk premium for individual car models is discussed. Cluster analysis is used to identify groups of car models with similar technical attributes. Credibility theory is used to combine estimates of risk premium from individual car model claim statistics, group claim statistics, and a technical assessment carried out by car experts. The procedure is applied to a small set of car models.