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Author Chapman, Zaneta
Title Risk, return and credit
book jacket
Descript 81 p
Note Source: Dissertation Abstracts International, Volume: 71-02, Section: A, page: 0620
Adviser: Michael Powers
Thesis (Ph.D.)--Temple University, 2010
This dissertation investigates the role of credit in the evaluation of risk and return. The research comprises three essays, which analyze the use of credit from different perspectives
In the first essay, we propose a comprehensive theory for the assessment and implementation of "acceptable" underwriting and rating variables. Because of disparities in the way underwriting and rating classifications affect members of different social classes and ethnic/racial groups, government policymakers and consumers often question the appropriateness of certain controversial variables -- for example, credit scores. We argue that a rating classification may be appropriate when the cost to society is relatively small. The use of personal credit in the automobile-insurance industry is addressed as a potential application of the proposed models, and other considerations are explored
In the second essay, we investigate the use of credit by speculators (i.e., gamblers or investors) as a means of increasing expected survival time and/or the probability of achieving gains. We propose a strategy in which a speculator engages in bet doubling and uses credit to maximize the probability of winning a specified amount. It is shown that with sufficient credit, it is possible to win with an arbitrarily high degree of certainty over the long run, even when facing random trials that are individually unfavorable. However, adopting such a strategy would eventually lead to large losses and negative expected profits. By limiting liability, total losses are restricted and the speculator's chances of obtaining positive gains increase. It is also shown that the cost of obtaining credit is an important consideration, and that it is disadvantageous for the speculator to engage in bet-doubling strategies when the cost of obtaining credit is high relative to the probability of winning
In the third essay, we investigate "hazardously immoral" contracts that force external parties to bear significant losses without their consent. By concentrating risks and reducing visibility, such contracts obscure the expected cost of failure by not taking routine charges for predictable, albeit uncertain, future losses. Abuses are particularly likely to occur when the threat of system-wide disruption is sufficient to make governments and/or international agencies bail out the offending organizations in order to limit total damages. The models provided in the second essay are presented as possible strategies for concentrating risks, and several results are derived. In particular, it is shown that credit is extremely valuable, and that if credit can be obtained at sufficiently low rates of interest, then it is a simple matter to develop strategies in which the probability of achieving gains is practically guaranteed, despite large negative expected profits
School code: 0225
Host Item Dissertation Abstracts International 71-02A
Subject Business Administration, Management
Alt Author Temple University. Business Administration
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