This book is fundamentally about the estimation of risk. At an intuitive level, risk is easy to understand: given an asset with a current price of say $100, what is the likelihood that at some future time—the risk horizon—its price will be less than $90? Or more than $120? And how does the probability of observing a price below $90 change as a function of the risk horizon? Such heuristic notion...

A dynamic model is presented of a household’s joint production, storage, and trade decisions under price risk, region-wide and idiosyncratic yield risk, and explicit transaction costs. Balancing the goals of profit maximization and hedging against consumption price risk, grain management decisions are nonlinear, interdependent functions of the market price and household grain availability and f...

In this paper, Black Scholes’s pricing model was developed to study American option on future contracts of Brent oil. The practical tests of the model show that market priced option contracts as future contracts less than what model did, which mostly represent option contracts with price rather than without price. Moreover, it suggests call option rather than put option. Using t hypothesis test...

A recent strategy carried out by the aircraft industry to reduce the total cost of the new generation fighters has consisted in the development of a single airframe with different technical and operational specifications. This strategy has been designed to reduce costs in the Research, Design and Development phase with the ultimate objective of reducing the final unit price per aircraft. This i...

In estimating the cost-effectiveness of diagnostic procedures, it is helpful to treat diagnostic information as a commodity with a unit price. The amount of useful information provided by a test result can be measured in binary units (bits), and the unit price of the information produced by the test result can be expressed in dollars per bit in much the same way that the price of gold is given ...

Recently, at the 119th European Study Group with Industry, the Energy Solutions Operator EDP proposed a challenge concerning electricity prices simulation, not only for risk measures purposes but also for scenario analysis in terms of pricing and strategy. The main purpose was short-term Electricity Price Forecasting (EPF). This analysis is contextualized in the study of time series behavior, i...

Basis = price of hedged asset-price of hedging instrument problem of basis risk: uncertainties of processes describing the evolution of prices of asset and hedging instrument not identical, only highly correlated Example 1: weather derivatives hedged asset: heating oil sales, hedging instrument: HDD derivative HDD derivative: contract paying a premium in case HDD above a critical threshold Exam...

We study private-value auctions with n risk-averse bidders, where n is large. We first use asymptotic analysis techniques to calculate explicit approximations of the equilibriumbids and of the seller’s revenue in any k-price auction (k = 1, 2, . . .). These explicit approximations show that in all large k-price auctions the effect of risk-aversion is O(1/n2) small. Hence, all large k-price auct...