A Bottom-Up Dynamic Model of Portfolio Credit Risk with Stochastic Intensities and Random Recoveries

In Bielecki et al. (2014a Bielecki , T. R. , Cousin , A. , Crépey , S. , Herbertsson , A. ( 2014a ). Dynamic hedging of portfolio credit risk in a markov copula model . J. Optimiz. Theor. Applic . doi: DOI 10.1007/s10957-013-0318-4 (forthcoming) .[Crossref] , [Google Scholar]), the authors introduced a Markov copula model of portfolio credit risk where pricing and hedging can be done in a sound theoretical and practical way. Further theoretical backgrounds and practical details are developed in Bielecki et al. (2014b Bielecki , T. R. , Cousin , A. , Crépey , S. , Herbertsson , A. ( 2014b ). A bottom-up dynamic model of portfolio credit risk - Part I: Markov copula perspective . In: Recent Adv. Fin. Eng. 2012 , World Scientific (preprint version available at http://dx.doi.org/10.2139/ssrn.1844574) . [Google Scholar],c) where numerical illustrations assumed deterministic intensities and constant recoveries. In the present paper, we show how to incorporate stochastic default intensities and random recoveries in the bottom-up modeling framework of Bielecki et al. (2014a Bielecki , T. R. , Cousin , A. , Crépey , S. , Herbertsson , A. ( 2014a ). Dynamic hedging of portfolio credit risk in a markov copula model . J. Optimiz. Theor. Applic . doi: DOI 10.1007/s10957-013-0318-4 (forthcoming) .[Crossref] , [Google Scholar]) while preserving numerical tractability. These two features are of primary importance for applications like CVA computations on credit derivatives (Assefa et al., 2011 Assefa , S. , Bielecki , T. R. , Crépey , S. , Jeanblanc , M. ( 2011 ). CVA computation for counterparty risk assessment in credit portfolios . In: Bielecki , T.R. , Brigo , D. , Patras , F. , Eds., Credit Risk Frontiers . Hoboken : Wiley/Bloomberg-Press . [Google Scholar]; Bielecki et al., 2012 Bielecki , T. R. , Crépey , S. , Jeanblanc , M. , Zargari , B. ( 2012 ). Valuation and Hedging of CDS counterparty exposure in a markov copula model . Int. J. Theoret. Appl. Fin. 15 ( 1 ): 1250004 .[Crossref] , [Google Scholar]), as CVA is sensitive to the stochastic nature of credit spreads and random recoveries allow to achieve satisfactory calibration even for “badly behaved” data sets. This article is thus a complement to Bielecki et al. (2014a Bielecki , T. R. , Cousin , A. , Crépey , S. , Herbertsson , A. ( 2014a ). Dynamic hedging of portfolio credit risk in a markov copula model . J. Optimiz. Theor. Applic . doi: DOI 10.1007/s10957-013-0318-4 (forthcoming) .[Crossref] , [Google Scholar]), Bielecki et al. (2014b Bielecki , T. R. , Cousin , A. , Crépey , S. , Herbertsson , A. ( 2014b ). A bottom-up dynamic model of portfolio credit risk - Part I: Markov copula perspective . In: Recent Adv. Fin. Eng. 2012 , World Scientific (preprint version available at http://dx.doi.org/10.2139/ssrn.1844574) . [Google Scholar]) and Bielecki et al. (2014c Bielecki , T. R. , Cousin , A. , Crépey , S. , Herbertsson , A. ( 2014c ). A bottom-up dynamic model of portfolio credit risk - Part II: Common-shock interpretation, calibration and hedging issues . Recent Adv. Fin. Eng. 2012 , World Scientific (preprint version available at http://dx.doi.org/10.2139/ssrn.2245130) . [Google Scholar]).     

Simulation/Regression Pricing Schemes for CVA Computations on CDO Tranches

We devise simulation/regression numerical schemes for pricing the CVA on CDO tranches, where CVA stands for Credit Valuation Adjustment, or price correction accounting for the defaultability of a counterparty in an OTC derivatives transaction. This is done in the setup of a continuous-time Markov chain model of default times, in which dependence between credit names is represented by the possibility of simultaneous defaults. The main idea of this article is to perform the nonlinear regressions which are used for computing conditional expectations, in the time variable for a given state of the model, rather than in the space variables at a given time in diffusive setups. This idea is formalized as a lemma which is valid in any continuous-time Markov chain model. It is then implemented on the targeted application of CVA computations on CDO tranches.     

The potential power of social policy programmes: income redistribution,economic resources and health

Lundberg O, Fritzell J, Åberg Yngwe M, Kölegård ML. The potential power of social policy programmes: income redistribution, economic resources and health Int J Soc Welfare 2010: ??: ??–??© 2010 The Author(s), Journal compilation © 2010 Blackwell Publishing Ltd and International Journal of Social Welfare. This Supplement includes a number of articles dealing with the role of social policy schemes for public health across the life course. As a key social determinant of health, poverty and its consequences have historically been at the forefront of the public health discussion. But also in rich countries today, economic resources are likely to be important for health and survival, both on an individual and an aggregate level. This introductory article serves as a background for the more specific analyses that follow. The focus is on why income and income inequality could have an effect on individual and population health. We discuss relationships between the individual and population levels and between income and health, and some of the possible mechanisms involved. We also present arguments for why welfare state institutions may matter.     

Decision‐making in child welfare services: Professional discretion versus standardized templates

The article explores differences in the assessment and decision‐making processes, in child welfare services where a standardized template is implemented and in services where it is not. Child welfare services in several countries use different approaches to assess children's and families' need for intervention. In Norway, as in other European countries, there is a shortage of knowledge about decision‐making strategies. The article examines how 36 child welfare caseworkers in 6 different teams in Norway investigate, assess, and make decisions at the phase of an incoming referral. The analysed data were collected by focus group interviews. We use decision theory as a theoretical frame of reference. The analysis shows variation in the assessment procedure at different points of the process, depending on which approach was used. Despite such differences, the final decisions made were almost identical. Even though the data has its limitations because of the small number of informants, the results indicate that choice of approach is not decisive for decision‐making in the child welfare services.     

Stockouts and Restocking: Monitoring the Retailer from the Supplier’s Perspective

Suppliers and retailers typically do not have identical incentives to avoid stockouts (lost sales due to the lack of product availability on the shelf). Thus, the supplier needs to monitor the retailer’s restocking efforts with the available data. We empirically assess stockout levels using only shipment and sales data that is readily available to the supplier. The model distinguishes between store stockouts (zero inventory in the store) and shelf stockouts (an empty shelf but some inventory in other parts of the store), thereby identifying the cause of the stockout to be either a supply chain or a restocking issue. We find that, as suspected by the supplier, the average stockout rate is much higher than published averages. In addition, stockout rates vary widely between stores. Moreover, almost all stockouts are shelf stockouts. The model identifies stores that may have restocking issues.     

Tribute to Jean-Yves Jaffray

Tribute to Jean-Yves Jaffray by the French Group of Decision Theory.     

Comparing Long-Term Care Recipients in Urban and Rural Municipalities in Japan and Sweden

Japan and Sweden both have national systems of long-term care (LTC) and face similar challenges. This study compared various indicators of disability in LTC recipients in nine large urban, midsize urban, and rural municipalities in both countries. The aim was to establish whether urban-rural differences exist and whether they follow similar patterns in Japan and Sweden. It was found that LTC recipients in large urban municipalities in both countries were on average significantly less disabled than those from the other types of municipalities, regardless of the indicator for disability. Fewer persons in large urban municipalities live in extended families, which may increase the propensity to apply for LTC. The number of older people living alone in Japan is increasing, which means that the formal LTC system will come under increased pressure.     

THE POPULAR IN THE POLITICAL SYSTEM

This paper suggests a systems theoretical re-reading of popular communication and the Popular in the political system. Luhmann' anti-humanist notion of communication helps to reframe the discussion of the Popular: it is not defined by an en- or decoding instance, but by a particular mode of ‘connectivity'. Drawing from heterogeneous material (Mars Attacks!, crowd psychology, theory of democracy), it is argued that the problem of the Popular arises when a functional system has to represent something that transgresses the system' universality. That which the system has to exclude to become a system re-emerges as ‘grotesque hybrid’, thus pointing at a universality that is, on the one hand, an opportunity for a further universalization and, on the other, a threat to the very universality of the system. The ‘Popular’ thus acquires a hybrid position by articulating these two dimensions.     

Is the association between social capital and health robust across Nordic regions? Evidence from a cross‐sectional study of older adults

Nyqvist F, Nygård M. Is the association between social capital and health robust across Nordic regions? Evidence from a cross‐sectional study of older adults The study examined the association between structural and cognitive social capital and self‐rated health among 65‐ and 75‐year‐olds in Västerbotten in Sweden and Österbotten and Pohjanmaa in Finland. Data were retrieved from a cross‐sectional postal questionnaire survey conducted in 2005 and was answered by 3,370 persons, yielding a total response rate of 69 per cent. The association between self‐rated health and interpersonal trust and membership in organisations was tested by logistic regression analysis. The results showed that older adults in Västerbotten in Sweden experienced better self‐rated health than in Finland. Furthermore, interpersonal trust and active membership in organisations were associated with self‐rated health among 65‐ and 75‐year olds even after having controlled for the influence of region. We therefore conclude that the association between social capital and self‐rated health tends to be robust across contextually similar regions, but that further analyses are warranted in order to clarify the nature of this relationship. Key Practitioner Message: ?Health status can be indirectly strengthened through investments in social capital, such as group participation and active networks; ?When working with older adults, more focus needs to be put on how to develop trustful relationships; ?The Nordic welfare state, with its universal and subsidised social and health care services, has an indirect and positive effect on health among older adults.