Misplaced Pages

#411588

44-528: In March 2024 Arenaways was awarded a PSO contract for the operation of two railway lines in Piedmont for 10 years, commencing in January 2025. The operator selected Estonian rail ticketing solutions firm, Turnit , to power their eCommerce and ticketing solutions. Arenaways used Bombardier Traxx locomotives, and passenger coaches built by Astra Vagoane Călători  [ ro ] . The company offered

88-435: A free market , but where there is a socially desirable advantage to transport being available. The use of PSO can be applied to many modes of transport , including air , sea , road or rail . In many cases, the introduction of PSO has been a way to privatize government-owned transport. Infrastructure is often separated from operations, and may be owned by a governing body or a third party. The authority may also maintain

132-436: A game show participant may choose one of two doors, one that hides $ 1,000 and one that hides $ 0. Further, suppose that the host also allows the contestant to take $ 500 instead of choosing a door. The two options (choosing between door 1 and door 2, or taking $ 500) have the same expected value of $ 500, so no risk premium is being offered for choosing the doors rather than the guaranteed $ 500. A contestant unconcerned about risk

176-434: A greater risk premium as compensation. Risk premiums are essential to the banking sector and can provide a large amount of information to investors and customers alike. For instance, the risk premium for a savings account is determined by the bank through the interest that they set on their savings accounts for customers. This less the interest rate set by the central bank provides the risk premium. Stakeholders can interpret

220-407: A higher wage. CEO's in industries with high volatility are subject to increased risk of dismissal. Dismissed CEO's often undergo a period of unemployment after dismissal and frequently settle for jobs in smaller firms with lower remuneration. Due to this, and assuming there is demand competition within the labor market, they often require a higher remuneration than CEO's in non-volatile industries as

264-461: A large premium as an indication of increased default risk which has flow on effects such as negatively impacting the public's confidence in the financial system which can ultimately lead to bank runs which is dangerous for an economy. The risk premium is equally important for a bank's assets with the risk premium on loans, defined as the loan interest charged to customers less the risk free government bond, needing to be sufficiently large to compensate

308-437: A larger premium potentially suggesting that there is a greater risk and/ or a lack of workers willing to take the risk. The level of risk associated with the risk premium concept does not need to be physical risk but it can also incorporate risk surrounding the job, such as job security . Higher risk of unemployment  is compensated with a higher wage with this being a reason as to why fixed-term contracts generally include

352-690: A number of novel on-board services. In November 2024, Renfe bought a 33% shareholding in Arenaways. [REDACTED] Media related to Arenaways at Wikimedia Commons Public service obligation In the context of European Union law, a public service obligation or PSO is an obligation imposed on an organisation by legislation or contract to provide a service of general interest within EU territories. PSOs may operate in any field of public service, but postal services , social services , energy , transport and banking are specific sectors where

396-589: A portion or all of the seats offered, membership of a common reservation system, quality of service measured by a maximum percentage of cancelled services, etc. Examples of air transport PSOs currently in operation in Europe are routes from Dublin to Kerry and Donegal , routes between the Greek Mainland and the Greek Islands , routes from Italian mainland to Sardinia and Elba , routes between

440-500: A rational agent has a utility function that maps sure-outcomes to numerical values, and the agent ranks gambles over sure-outcomes by their expected utilities. Let the set of possible wealth-levels be R {\displaystyle \mathbb {R} } . A gamble Z {\displaystyle Z} is a real-valued random variable. The actuarial value of the gamble is just its expectation: E [ Z ] {\displaystyle \mathbb {E} [Z]} . This

484-408: A risk premium. The option value of whether to invest in invasive species quarantine and/or management is a risk premium in some models. Farmers cope with crop pathogen risks and losses in various ways, mostly by trading off between management methods and pricing that includes risk premiums. For example in the northern United States , Fusarium head blight is a constant problem. Then in 2000

SECTION 10

#1732764776412

528-490: A stock can be estimated by the magnitude of the standard deviation from the mean. If for example the price of two different stocks were plotted over a year and an average trend line added for each, the stock whose price varies more dramatically about the mean is considered the riskier stock. Investors also analyse many other factors about a company that may influence its risk such as industry volatility , cash flows , debt , and other market threats. In expected utility theory,

572-402: Is π ( w , Z ) {\displaystyle \pi (w,Z)} , defined as the solution to u ( w + E [ Z ] − π ) = E [ u ( w + Z ) ] . {\displaystyle u(w+\mathbb {E} [Z]-\pi )=\mathbb {E} [u(w+Z)].} Note that the risk-premium depends both on the gamble itself,

616-664: Is a lower risk premium in each bid. This option also makes it easier to create free transfer between operators and modes. Net contracts give the operators an incentive to increase ridership and reduce risk to the auctioneer. Gross contracts tend to have higher administrative costs for the authority administrating the fares. Urban public transport with transit authorities is most commonly operated with gross contracts, while airlines and ferry routes are typically operated on net contracts. Typical uses of PSO include regional airline services in Northern Norway or Ireland , where

660-445: Is equally applicable in managerial economics. The risk premium is largely correlated with risk aversion with the larger the risk aversion of an individual or business the larger the risk premium the party will be willing to pay to avoid the risk. Regarding workers, the risk premium increases as the risk of injury increases and manifests in practice with average wages in dangerous jobs being higher for this reason. Another way in which

704-434: Is generally used to estimate the required rate of return for an equity. This required rate of return can then be used to estimate a price for the stock which can be done via a number of methods. The formula for CAPM is: In this model, we use the implied risk premium (market return less risk-free rate) and multiply this with the beta of the security. The beta of a security is the measure of a security's volatility relative to

748-419: Is independent of any agent. Let the agent have a utility function u : R → R {\displaystyle u:\mathbb {R} \to \mathbb {R} } , with a wealth-level w ∈ R {\displaystyle w\in \mathbb {R} } . The risk-premium of Z {\displaystyle Z} for the agent at wealth-level w {\displaystyle w}

792-433: Is indifferent between these choices. A risk-averse contestant will choose no door and accept the guaranteed $ 500, while a risk-loving contestant will derive utility from the uncertainty and will therefore choose a door. If too many contestants are risk averse, the game show may encourage selection of the riskier choice (gambling on one of the doors) by offering a positive risk premium. If the game show offers $ 1,600 behind

836-404: Is that the risk premium is larger during economic downturns and during periods of increased uncertainty. There are many forms of risk such as financial risk , physical risk , and reputation risk . The concept of risk premium can be applied to all these risks and the expected payoff from these risks can be determined if the risk premium can be quantified. In the equity market , the riskiness of

880-591: Is to maintain a minimal level of scheduled air service to these communities that otherwise would not be profitable. This came in response to the Airline Deregulation Act , passed in 1978, which gave U.S. airlines almost total freedom to determine which markets to serve domestically and what fares to charge for that service. The program is codified at 49 U.S.C.   §§ 41731 – 41748 . The United States Department of Transportation (DOT) subsidizes airlines to serve rural communities across

924-449: Is used extensively in finance in areas such as asset pricing, portfolio allocation and risk management. Two fundamental aspects of finance, being equity and debt instruments, require the use and interpretation of associated risk premiums with the inputs for each explained below: In the stock market the risk premium is the expected return of a company stock, a group of company stocks, or a portfolio of all stock market company stocks, minus

SECTION 20

#1732764776412

968-688: The French mainland and Corsica , certain domestic routes within Sweden and Finland , and routes to the Scottish Highlands and Islands . International routes are usually not supported by PSO. This is because of a political principle that people should pay for international travel themselves, not through tax money. This is especially evident in Scandinavia where there is very little international air traffic between cities other than through

1012-485: The European Union and be open to any transport operator registered in an EU member state. There are limitations in the number of passengers which can be carried where the route can remain eligible for PSO. The winning tenderer usually receives a monopoly on the route, but may have to conform to one or more conditions of service, such as the type and size of vehicle, the timing of services, the maximum fare paid for

1056-651: The agent's utility function, and the wealth-level of the agent. This can be understood intuitively by considering a real gamble. Some people may be quite willing to take the gamble and thus have a low risk-premium, while others are more averse. Further, as one's wealth increases, one is usually less perturbed by the gamble, whose stakes diminshes relative to one's wealth, consequently the risk-premium π ( w , Z ) {\displaystyle \pi (w,Z)} often decreases as w {\displaystyle w} increases, holding Z {\displaystyle Z} constant. The risk premium

1100-497: The airlines serve low-population areas not profitable for the carriers without subsidies. Rail services can be unprofitable even on major routes, and government subsidies are sometimes offered through PSO. This has been very popular in Germany . Most cities subsidize their public transport , and in places where the transport is provided by private companies, that may be awarded through PSO. Other common PSO services are ferries, such as

1144-504: The broader market to understand its historical share price movement compared to the market. If the beta of a stock is 1.0 then a 10% increase in the market will translate to a 10% increase in stock price. If the Beta of a stock is 1.5 then a 10% increase in the market will translate to a 15% increase in the stock price and if the beta of a stock is 0.5 a 10% market increase will translate to a 5% stock price increase and likewise with decreases in

1188-628: The capitals, where connections are commercially profitable. There are exceptions, like the Stockholm - Narvik night trains. The term is also used in relation to electricity generation, such as wind power and biomass powerplants. The Essential Air Service (EAS) is a U.S. government public service obligation style program enacted to guarantee that small communities in the United States , which, prior to deregulation, were served by certificated airlines , maintained commercial service. Its aim

1232-495: The concept is relevant. In EU transport law, a PSO is an arrangement by which a governing body or other authority offers subsidies in an auction , whereby the winning company will be obliged to operate a specified service of public transport for a specified period of time in return for the subsidy. This usually leads to the winning bidder having a monopoly on the route, as competing services would not be viable without subsidies. PSOs are aimed at routes which are unprofitable in

1276-551: The country that otherwise would not receive any scheduled air service. As of November 1, 2013 , the Essential Air Service subsidized 160 communities, of which 43 were in Alaska, whose guidelines for service are distinct from the rest of the country. The decision as to what degree of subsidized service a community requires is made based on identifying a specific hub for the community and from there determining

1320-404: The expected return on an investment given a stated risk premium and risk-free rate. For example, if the investor in the example above required a risk premium of 9% then the expected return on the equity asset would have to be 12%. The risk premium associated with bonds , known as the credit spread , is the difference between a risky bond and the risk free treasury bond with greater risk demanding

1364-452: The formula below. R i s k   p r e m i u m = E ( r ) − r f {\displaystyle Risk\ premium=E(r)-r_{f}} Where E ( r ) {\displaystyle E(r)} is the risky expected rate of return and r f {\displaystyle r_{f}} is the risk-free return. The inputs for each of these variables and

Arenaways - Misplaced Pages Continue

1408-485: The good door, increasing to $ 800 the expected value of choosing between doors 1 and 2, the risk premium becomes $ 300 (i.e. $ 800 expected value minus $ 500 guaranteed amount). Contestants requiring a minimum risk compensation of less than $ 300 will choose a door instead of accepting the guaranteed $ 500. Schroeder estimated risk premiums ranging from 4.83 to 7.75 percent in securities markets in the United Kingdom and

1452-507: The institution for the increased default risk associated with providing a loan. One of the most important applications of risk premiums is to estimate the value of financial assets. There are a number of models used in finance to determine this with the most widely used being the Capital Asset Pricing Model or CAPM. CAPM uses investment risk and expected return to estimate a value for the investment. In Finance, CAPM

1496-420: The latter the operator bids for the full operating costs, and all revenue goes to the authority; with net contracts the operator will be granted all revenue, and will bid only for the difference between fare revenue and that needed to make the desired profit. The use of gross contracts reduces the risk of the operator since they do not need to estimate the ridership and will normally result in lower bids since there

1540-401: The lowest bidding operator to carry out services. The authority issuing the auction may be a ministry of transport , county , province , state , municipality or other regional or local authority, or it can be a transit authority or other ad-hoc organization responsible for some form of transport in an area. To put sérvices out to tender, an authority must have an interest in subsidizing

1584-401: The market. This beta is generally found via statistical analysis of the share price history of a stock. Therefore CAPM aims to provide a simple model in order to estimate the required return of an investment which uses the theory of risk premiums. This helps to provide investors with a simple means of determining what return an investment should be relative to its risk. The risk premium concept

1628-403: The number of trips, seats, and type of aircraft that are necessary to reach that hub. Risk premium A risk premium is a measure of excess return that is required by an individual to compensate being subjected to an increased level of risk. It is used widely in finance and economics, the general definition being the expected risky return less the risk-free return , as demonstrated by

1672-406: The ownership of the vehicles, such as ferries or rolling stock . Traditionally, public transport has been operated by a company wholly-owned by the state with a monopoly, like a national railway company. Alternatively, private companies were granted privileges (with or without subsidies) granting them a monopoly. In recent years, many markets have been deregulated, especially in Europe, by paying

1716-464: The release of a multiply-resistant cultivar of wheat dramatically reduced the necessary risk premium. The total planted area of MR wheats was dramatically expanded, due to this essentially costless tradeoff to the new cultivar. Estimates of costs of research and development - including patent costs - of new crop genes and other agricultural biotechnologies must include the risk premium of those which do not ultimately obtain patent approval. Suppose

1760-409: The risk premium can be interpreted from the workers perspective is that risk is valued by the market, in the form of wage discrepancies between risky and less risky jobs, with a worker able to determine what amount they are willing to forgo to engage in a less risky job. In this instance the risk premium provides insight into the strength of correlation between risk and the average job type earnings with

1804-532: The risk-free rate. The return from equity is the sum of the dividend yield and capital gains and the risk free rate can be a treasury bond yield. For example, if an investor has a choice between a risk-free treasury bond with a bond yield of 3% and a risky company equity asset, the investor may require a greater return of 8% from the risky company. This would result in a risk premium of 5%. Individual investors set their own risk premium depending on their level of risk aversion. The formula can be rearranged to find

Arenaways - Misplaced Pages Continue

1848-646: The routes to Gotland in Sweden, or car ferries along Norway's road network. Ferry routes serving outlying islands in Hong Kong are also subsidised, as a result of rising oil price and therefore the cost of operation. In the European Union , route PSOs are governed by Regulation (EC) No 1008/2008 and Council Regulation (EEC) 3577/92. They must be offered for tender in the Official Journal of

1892-416: The transport. It must also have the authority to prevent other interests from operating competing services on parts of or all of the system. The auctioneer will specify a number of terms of the service, such as frequency , size of vehicle, timing of services, the maximum permitted fare , and/or other specifications related to service and quality. The auctioneer can specify either a net or gross contract. In

1936-442: The ultimate interpretation of the risk premium value differs depending on the application as explained in the following sections. Regardless of the application, the market premium can be volatile as both comprising variables can be impacted independent of each other by both cyclical and abrupt changes. This means that the market premium is dynamic in nature and ever-changing. Additionally, a general observation regardless of application

#411588