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Reserving for deferred capital gains tax (an application of option pricing theory).
Abstracts and Reviews
053085 (M54,
B35)
Predicting loss of life in cases of dam failure and flash flood. DeKay M.L., McClelland G.H., University of Colorado, Risk Analysis, Vol. 13, nr. 2, 1993, pp. 193205.
165
of risk management measures that go beyond the purely technical (e.g., add redundancies to a safety system) and also include improvements of management practices. (Author) Keywords: Piper Alpha Accident, Offshore Platforms, Human Error, Organizational Errors, Postmortem
This paper improves upon previous attempts to predict loss of life (LOL) from severe flooding events. An expression for LOL in terms of warning time (WT), the size of the population at risk (PAR), and the forcefulness of the flood waters (Force) is derived from the historical record of dam failures and flash flood cases via logistic regression. There is no evidence for an effect of prior flooding experience or an interaction between WT and PAR, as has been suggested elsewhere. Guidelines are suggested for the proper use of the final equations and the findings are discussed in relation to a (Authors) theoretical model of flood fatalities.
Analysis,
Keywords:
This paper sets out a framework, based on option pricing theory, that can be used to assess the value of deferred unrealized capital gains tax. In the U.K. and Australia, capital gains tax is paid on realization of assets and the basis for determining the tax allows for inflation indexation of the cost base of the asset. Capital gains tax payments under these circumstances are shown to resemble those of a complex option. A number of theoretical approaches to the valuation of this option are discussed in the paper. (Author)
Dam Failure,
Regression,
Evacuation,
Floods,
Logistic
Loss of Life, Warning.
053086 (M54,
E43, B31)
Learning from the Piper Alpha accident: a postmortem analysis of technical and organizational factors. Pat&Cornell M.E., Stanford University, California, Risk Analysis,
Vol. 13, nr. 2, pp. 21.5-232.
The accident that occurred on board the offshore platform Piper Alpha in July 1988 killed 167 people and cost billions of dollars in property damage. It was caused by a massive fire, which was not the result of un unpredictable “act of God” but of an accumulation of errors and questionable decisions. Most of them were rooted in the organization, its structure, procedures, and culture. This paper analyzes the accident scenario using the risk analysis framework, determines which human decision and actions influenced the occurrence of the basis events, and then identifies the organizational roots of these decisions and actions. The organizational factors are generalizable to other industries and engineering systems. They include flaws in the design guidelines and design practices (e.g., tight physical couplings or insufficient redundancies), misguided priorities in the management of the tradeoff between productivity and safety, mistakes in the management of the personnel on board, and errors of judgment in the process by which financial pressures are applied on the production sector (i.e., the oil companies’ definition of profit centers) resulting in deficiencies in inspection and maintenance operations. This analytical approach allows identification
Probabilistic
Risk Analysis.
INSURANCE RELATED MATHEMATICAL ECONOMICS, GENERAL AND MISCELLANEOUS EIO:
053087 (ElO, E23) Reserving for deferred capital gains tax application of option pricing theory). Sherris M., Journal of the Institute of Actuaries,
(an Vol.
119, Part I, 1992, pp. 45-67.
Keywords:
Options, Reserves,
Tax, Valuation.
053088 (ElO)
Testing for juxtaposition and event-splitting effects. Starmer C., Sugden R., University of East Anglia, United Kingdom, Journal of Risk and Uncertainty, Vol. 6, nr. 3, juni
1993, pp. 235-254.
Regret theory predicts that choices over prospects will be systematically influenced by the juxtaposition of outcomes in the payoff matrix. Experiments have found apparent juxtaposition effects of this kind. However, these experiments have not controlled for “eventsplitting effects” (ESEs), by which the subjective weight given to an outcome depends on the number of states of the world in which it occurs, as well as on their combined probability. An experiment is reported that tests independently for juxtaposition effects and ESEs. The results suggest that the apparent juxtaposition effects found in previous experiments are largely due to ESEs. (Authors) Keywords: Event-splitting Regret Theory.
Effect,
Juxtaposition
Effect,
053085 (M54,
B35)
Predicting loss of life in cases of dam failure and flash flood. DeKay M.L., McClelland G.H., University of Colorado, Risk Analysis, Vol. 13, nr. 2, 1993, pp. 193205.
165
of risk management measures that go beyond the purely technical (e.g., add redundancies to a safety system) and also include improvements of management practices. (Author) Keywords: Piper Alpha Accident, Offshore Platforms, Human Error, Organizational Errors, Postmortem
This paper improves upon previous attempts to predict loss of life (LOL) from severe flooding events. An expression for LOL in terms of warning time (WT), the size of the population at risk (PAR), and the forcefulness of the flood waters (Force) is derived from the historical record of dam failures and flash flood cases via logistic regression. There is no evidence for an effect of prior flooding experience or an interaction between WT and PAR, as has been suggested elsewhere. Guidelines are suggested for the proper use of the final equations and the findings are discussed in relation to a (Authors) theoretical model of flood fatalities.
Analysis,
Keywords:
This paper sets out a framework, based on option pricing theory, that can be used to assess the value of deferred unrealized capital gains tax. In the U.K. and Australia, capital gains tax is paid on realization of assets and the basis for determining the tax allows for inflation indexation of the cost base of the asset. Capital gains tax payments under these circumstances are shown to resemble those of a complex option. A number of theoretical approaches to the valuation of this option are discussed in the paper. (Author)
Dam Failure,
Regression,
Evacuation,
Floods,
Logistic
Loss of Life, Warning.
053086 (M54,
E43, B31)
Learning from the Piper Alpha accident: a postmortem analysis of technical and organizational factors. Pat&Cornell M.E., Stanford University, California, Risk Analysis,
Vol. 13, nr. 2, pp. 21.5-232.
The accident that occurred on board the offshore platform Piper Alpha in July 1988 killed 167 people and cost billions of dollars in property damage. It was caused by a massive fire, which was not the result of un unpredictable “act of God” but of an accumulation of errors and questionable decisions. Most of them were rooted in the organization, its structure, procedures, and culture. This paper analyzes the accident scenario using the risk analysis framework, determines which human decision and actions influenced the occurrence of the basis events, and then identifies the organizational roots of these decisions and actions. The organizational factors are generalizable to other industries and engineering systems. They include flaws in the design guidelines and design practices (e.g., tight physical couplings or insufficient redundancies), misguided priorities in the management of the tradeoff between productivity and safety, mistakes in the management of the personnel on board, and errors of judgment in the process by which financial pressures are applied on the production sector (i.e., the oil companies’ definition of profit centers) resulting in deficiencies in inspection and maintenance operations. This analytical approach allows identification
Probabilistic
Risk Analysis.
INSURANCE RELATED MATHEMATICAL ECONOMICS, GENERAL AND MISCELLANEOUS EIO:
053087 (ElO, E23) Reserving for deferred capital gains tax application of option pricing theory). Sherris M., Journal of the Institute of Actuaries,
(an Vol.
119, Part I, 1992, pp. 45-67.
Keywords:
Options, Reserves,
Tax, Valuation.
053088 (ElO)
Testing for juxtaposition and event-splitting effects. Starmer C., Sugden R., University of East Anglia, United Kingdom, Journal of Risk and Uncertainty, Vol. 6, nr. 3, juni
1993, pp. 235-254.
Regret theory predicts that choices over prospects will be systematically influenced by the juxtaposition of outcomes in the payoff matrix. Experiments have found apparent juxtaposition effects of this kind. However, these experiments have not controlled for “eventsplitting effects” (ESEs), by which the subjective weight given to an outcome depends on the number of states of the world in which it occurs, as well as on their combined probability. An experiment is reported that tests independently for juxtaposition effects and ESEs. The results suggest that the apparent juxtaposition effects found in previous experiments are largely due to ESEs. (Authors) Keywords: Event-splitting Regret Theory.
Effect,
Juxtaposition
Effect,