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“Modeling the Frequency and Severity of Extreme Exchange Rate Returns”

Risk managers are often concerned about tail probabilities of asset return distributions, in particular the frequency and severity of extreme returns. In this article, we propose a model that integrates extreme value theory and point processes to model the frequency and severity of exchange rate returns. The proposed model is applied to daily spot exchange rate series and the parameters of interest, such as the tail index, the mean size and rate of occurrence of extreme returns, are estimated using maximum likelihood estimation. We study the impact of recent currency crises on the frequency and severity of the series and find that, during 1995-9, the frequency of extreme daily Japanese yen-US dollar spot exchange rate returns increases twofold, and the time duration of high volatility persists longer for the Japanese yen series than for the Swiss franc and Danish krone series. Copyright © 2001 John Wiley & Sons, Ltd.

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Academic Journal

Supply Chain

“Municipal Groundwater Management: Optimal Allocation and Control of a Renewable Natural Resource”

We study a municipal groundwater management problem to determine optimal allocation and control policies in the presence of water transfer opportunities. We establish and characterize threshold polices governing export or import decisions of a given municipality. In the spirit of the Triple Bottom Line (3BL), we ascertain that exporting (importing) water through a water market defined by an exogenous export/import price is detrimental (beneficial) to both society and the environment within the municipality. In contrast, fixed quantity trading between two municipalities defined by an endogenously negotiated export/import price can have positive as well as negative impacts from a global 3BL perspective. In particular, typical trading scenarios that occur between municipalities can be detrimental to the environment. We also study the implications of privatization, and find that a privatized municipality would be more (less) likely to export (import) water as compared to its non‐privatized counterpart, resulting in negative implications for society within the municipality. However, if exports are banned, privatization can benefit the environment by mitigating the damage caused by the extraction differential, a phenomenon analogous to the green paradox. Moreover, careful and restricted privatization of municipalities can lead to positive global 3BL impacts from fixed quantity trading.

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Other

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“Nestle: Sourcing Strategy in China”

Distributed by The Case Center

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Conference

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“Nonparametric Density Estimation with Robust Tail Estimator”

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Academic Journal

Supply Chain

“On Bayesian Predictive Moments of Next Record Value Using Three-parameter Gamma Priors”

A forecasting model of next record value proposed by Hill [1] assumes the underlying distribution F(x) is of an algebraic functional form with a shape parameter a for large x. That is, 1 - F(x) ?Cx-a, for large x. In this article, we extend his model by incorporating a three-parameter Gamma prior of a to derive analytical solutions of the predictive distribution and moments of X given that X is a new record value. These closed-form formulas can be represented as ratios of moments of Gamma distributions. We apply the proposed model to a real-life data set that consists of the insured property losses of 33 catastrophes caused by tropical storms in the United States in 1995. The example illustrates the importance of incorporating prior experience and accounting for uncertainty in parameter estimation when forecasting record values. Both considerations are the main ingredients in the development of the proposed model.

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Academic Journal

Supply Chain

“On Social Dynamics Factors in Multi-stakeholder Decision Making in the Early State of Product Development”

When design decisions are made by a group of diverse stakeholders, the decision making process is affected by both technical and social dynamic factors and the design results are consequently a product of the joint influences. Though it is important, the role of social dynamic factors in design process is currently not well understood. In this work, our study is focused on a prioritising problem concerning understanding customer needs at the early stage, in particular, identifying Quality Requirements and their relative importance. We introduced one among many social dynamic factors, i.e. trust and investigated its role in the early stage design decision making of product development. Derived from the definition and principle forms of general trust, the trust concept used in the prioritising problem for our study is specified. The existing measurement scales used in social science are modified for measuring the trust in terms of trustworthiness.

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