Basis risk

Occupational illness occupational health is extensively reported on. The only figures given are for sickness absence, and this is reported on a regional basis. Risks associated with heavy physical work, exposure to chemical substances and noise, as well as psychological factors such as pressure of work are systematically analysed at each site. 

There are exceptions and provisos, but they are few. Possibly the only material exception is the need for the individual to pay down a nominal home loan over its life, so not all liabilities are ultimately real in the real world. A key proviso is that however well a linking index is constructed, there will be a basis risk between the inflation measured by the index and the personal inflation experienced by the unique basket of goods and services that each saver hopes to consume one day. 

The swap s value will change by approximately the same amount, but in the opposite direction, as the bond s value. The match will not be exact. It is very difficult to establish a precise hedge for a number of reasons, including differences in day count and in maturity, and basis risk. To minimize the mismatch, the swap s maturity should be as close as possible to... 

Aven and Renn argue for an uncertainty-based view on risk and risk assessment, where risk is conceptualized in line with definition class C8 (R = C U). In their view, risk assessment is an expression of an assessor s uncertainty about the occurrence of events and the consequences. Risk assessment can always be performed, as it is seen as a tool to describe uncertainties rather than a tool to uncover the truth. Their view has a strong constmctivist basis [...] risk does not exist independent of the assessor, as the uncertainties need to be assessed by somebody [...] Uncertainty is not real, it is a construct of human imagination to cope... 

The recommendations presented here concerning computer support and accident statistics do not primarily apply to small companies with a low number of accident cases per year. Here it is vital to secure a thorough reporting and investigation of accidents and near accidents, and follow up on a case-by-case basis. Risk analysis is also an activity that is well suited to the small company. Systematic activities in these areas may generate the need for computer support in follow-up and in storing and retrieval of analysis results. 

PROPERTY CLAIM SERVICES (PCS), a company operating in the USA, or PERILS, a similar entity operating in Europe, collect loss data from the major insurance companies after a catastrophe and aggregate them into an overall loss estimate. Risk transfer solutions based on these market estimates tie particular recoveries to the overall loss reported by the insurance market. By removing the direct connection between recoveries and particular portfolio losses, moral hazard is greatly diminished. If the event created a large loss for the insurance industry as a whole, it seems intuitive that recoveries for a particular insurer should be somewhat proportional to the overall loss. Naturally, this type of index works best for large companies whose portfolios mimic the distribution of the entire industry. For companies that operate within an industry niche, these types of solutions need to be tailored somehow since they may involve too much basis risk, the potential difference between actual losses and recoveries. 

CAT-in-a-box triggers associate discrete payments to a set of physical event parameters such as magnitude, epicenter location, and focal depth. They are discontinuous in namre and typically involve significant basis risk. Attempts to reduce the basis risk associated with these transactions have consisted of optimizing the trigger thresholds (Franco 2010) or discretizing the parameter domain (Franco 2013). 

Since micro-insurance solutions made their appearance in the early 2000s, the experience so far is very limited. In the meantime, significant challenges have been identified in the marketing and deployment of insurance solutions within populations that are remote or where great educational and cultural barriers exist. This has been partly addressed by the usage of parametric solutions, which as described above, suffer from basis risk but also help bypass claim processes that... 

Franco G (2013) Construction of customized payment tables for cat-in-a-box earthquake triggers as a basis risk reduction device. In Proceedings, 11th international conference on structural safety reliability, New York... 

Goda K (2013) Basis risk of earthquake catastrophe bond trigger using scenario-based versus station intensity-based approaches a case study for Southwestern British Columbia. Earthq Spectra 29(3) 757-775... 

NDT has a very important formal status. Requirements for performanee of NDT, acceptance criteria and requirements for personnel qualification are implemented in codes and standards. The NDT procedure is part of the contract. During the many years that NDT methods have been used in industry a well-established situation has evolved, enabling the use of NDT for the evaluation of welds against Good Workmanship Criteria on a routine basis, thus maintaining workmanship standards and minimising the risks of component failure. 

An important part of hazard analysis and risk assessment is the identification of the scenario, or design basis by which hazards result in accidents. Hazards are constandy present in any chemical faciUty. It is the scenario, or sequence of initiating and propagating events, which makes the hazard result in an accident. Many accidents have been the result of an improper identification of the scenario. 

The remaining step in the hazard identification and risk assessment procedure shown in Figure 1 is to decide on risk acceptance. For this step, few resources are available and analysts are left basically by themselves. Some companies have formal risk acceptance criteria. Most companies, however, use the results on a relative basis. That is, the results are compared to another process or processes where hazards and risks are weU-characterized. 

Reviews on the occurrence, biochemical basis, and treatment of lead toxicity in children (11) and workers (3,12,13) have been pubhshed. Approximately 17% of all preschool children in the United States have blood lead levels >10 //g/dL. In inner city, low income minority children the prevalence of blood lead levels >10 //g/dL is 68%. It has been estimated that over two million American workers are at risk of exposure to lead as a result of their work. PubHc health surveillance data document that each year thousands of American workers occupationally exposed to lead develop signs and symptoms indicative of... 

European Commission for these and other substances by nominated dates. The toxicological data and estimation of exposure will form the basis of risk analysis and deterrnination of the appropriate restriction and control of substances in the workplace (58). Restriction of the sales of dangerous substances and preparations to the general pubHc is enforced under Directive 76/769 EC (59). 

On this basis an alternative approach to risk analysis is the parameter method [D. O. Cooper and L. B. Davidson, Chem. E/ig. Prog., 72, 73-78 (November 1976)]. 

Since the utility curve has such a subjective basis, most companies prefer the objectivity of (NPV) and (DCFRR) over the range of the normal income and expenditure budget. Subjective methods tend to be reserved for exceptionally high risk projects. 

If both frequency and consequence values are calculated and reported on an absolute basis, then they may be reported graphically in combination with one another (Chapter 3), or simply as the product of frequency and consequence. Table 5 contains some examples of typical risk estimates (frequency and consequence products). Based on absolute risk estimates, you can decide whether the risk of a specific activity exceeds your threshold of risk tolerance (risk goal). If so, analysts can estimate the reduction in risk, given that certain improvements are made, assumptions changed, or operating circumstances eliminated. 

Both individual and societal risks may be presented on an absolute basis compared to a specific risk target or criterion. Or, they may be presented on a relative basis to avoid arguments regarding the adequacy of the absolute numbers while preserving the salient differences between alternatives. The end results of the risk presentation may be a single number (or a range of numbers if an uncertainty analysis was performed) or one or more graphs. 

When managers are faced with the necessity of using QRA results on an absolute basis, they must respect the potentially large uncertainties associated with the numbers and use prudent and conservative interpretations of these results for their decisions. Absolute risk estimates in... 

---