Measuring value and interest rate risk in retail financial markets such as the market for consumer deposits has proven to be a very difficult problem for financial firms. Standard models of value and interest rate risk (duration), based on the competitive market paradigm, are inappropriate in retail markets characterized by sluggish price and quantity behavior. Although the penetration of sophi...

One of the most widely appreciated problems of contingent valuation is the potential manipulability of the method, thus subjecting it to possible strategic bias. This paper shows that under usual conditions this problem also holds for market-based methods, such as travel cost and hedonic pricing. However, not all formats of these valuation methods are manipulable. This paper finds positive resu...

This paper presents a comprehensive theoretical and methodological framework clarifying the relationship between non-market environmental valuation techniques, in particular hedonic and life-satisfaction methods. The paper shows how life-satisfaction scores can be used to test correctly the equilibrium condition in location markets required by the hedonic approach and that in the absence of equ...

In this paper we present an approach to market based valuation of life insurance policies, in the spirit of the NUMAT proposed by Hans Bühlmann (2002) in an editorial in the ASTIN Bulletin. We have experienced the valuation method for more than one decade, both as a pricing procedure applied to policy portfolios of leading insurance companies, and by including the valuation principles into seve...

This paper assesses whether the market valuation of gold mining firms contain a premium for the option to close. Real options theory states that the managerial flexibility with respect to operating decisions of the firm have a recognisable and identifiable value. Together with the present value of expected cash flows (incorporated via the Hotelling Valuation Principle), existing theory purports...

In theory, valuation effects (changes in net external assets of a country arising from movements in exchange rates or asset returns) are an important channel of international risk sharing as they facilitate external adjustment. However, the effects can also be economically destabilizing in the presence of frictions in the international financial system. Despite the growing significance of valua...

Fair pricing of embedded options in life insurance contracts is usually conducted by using risk-neutral valuation. This pricing framework assumes a perfect hedging strategy, which insurance companies can hardly pursue in practice. In this paper, we extend the risk-neutral valuation concept with a risk measurement approach. We accomplish this by first calibrating contract parameters that lead to...

The use of valuation has an externality: it creates information on which adverse selection can occur. We study a market in which investors provide external financing for real investment projects. A subset of investors, sophisticated investors, can buy a technology to value a given number of projects, and reject those with low payoffs, Because rejected projects can seek funding from other invest...

We consider the problem of valuation of certain Asian options in the geometric jump-diffusion models with continuously dividend-paying assets. With the sources of diffusion risks and two primitive tradeable assets, the market in this model is, in general, incomplete, and so, there are more than one equivalent martingale measures and no-arbitrage prices. For this jump-diffusion model, we adopt t...

We introduce a model for a market based economic system of cyber-risk valuation to correct fundamental problems of incentives within the information technology and information processing industries. We assess the makeup of the current day marketplace, identify incentives, identify economic reasons for current failings, and explain how a market based risk valuation system could improve these inc...