CONVERGENCE OF CAPITAL AND INSURANCE MARKETS: CONSISTENT PRICING OF INDEX-LINKED CATASTROPHE LOSS INSTRUMENTS

Journal article


Publication Details

Author(s): Gatzert N, Pokutta S, Vogl N
Journal: Journal of Risk and Insurance
Publication year: 2019
Volume: 86
Journal issue: 1
Pages range: 39-72
ISSN: 0022-4367


Abstract

Index-linked catastrophe loss instruments have become increasingly attractive for investors and play an important role in risk management. Their payout is tied to the development of an underlying industry loss index (reflecting losses from natural catastrophes) and may additionally depend on the ceding company's loss. Depending on the instrument, pricing is currently not entirely transparent and does not assume a liquid market. We show how arbitrage-free and market-consistent prices for such instruments can be derived by overcoming the crucial point of tradability of the underlying processes. We develop suitable approximation and replication techniques and-based on these-provide explicit pricing formulas using cat bond prices. Finally, we use empirical examples to illustrate the suggested approximations.


FAU Authors / FAU Editors

Gatzert, Nadine Prof. Dr.
Lehrstuhl für Versicherungswirtschaft und Risikomanagement
Vogl, Nikolai
Lehrstuhl für Versicherungswirtschaft und Risikomanagement


External institutions with authors

Georgia Institute of Technology


How to cite

APA:
Gatzert, N., Pokutta, S., & Vogl, N. (2019). CONVERGENCE OF CAPITAL AND INSURANCE MARKETS: CONSISTENT PRICING OF INDEX-LINKED CATASTROPHE LOSS INSTRUMENTS. Journal of Risk and Insurance, 86(1), 39-72. https://dx.doi.org/10.1111/jori.12191

MLA:
Gatzert, Nadine, Sebastian Pokutta, and Nikolai Vogl. "CONVERGENCE OF CAPITAL AND INSURANCE MARKETS: CONSISTENT PRICING OF INDEX-LINKED CATASTROPHE LOSS INSTRUMENTS." Journal of Risk and Insurance 86.1 (2019): 39-72.

BibTeX: 

Last updated on 2019-01-03 at 04:08