Modelling catastrophe risk bonds

Shao, Jia
Modelling catastrophe risk bonds. [Unspecified]

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Insurance companies are seeking more adequate liquidity funds to cover the insured property losses related to nature and man-made disasters. Past experience shows that the losses caused by catastrophic events, such as earthquakes, tsunamis, floods or hurricanes, are extremely large. One of the alternative methods of covering these extreme losses is to transfer part of the risk to the financial markets, by issuing catastrophe-linked bonds. This thesis focuses on model and value Catastrophe (CAT) risk bonds. The findings of this thesis is twofold. First, we study the pricing process for CAT bonds with different model setups. Second, based on different framework, we structured three catastrophe based (earthquake, general and nuclear risk) bonds, estimated the parameters of the model by employing real world data and obtained numerical results using Monte Carlo simulation. Comparison between different models is also conducted. The first model employed the structure of n financial and m catastrophe-independent risks, and obtain the valuation framework. This generalized extension allows an easier application in the industry. As an illustration, a structured earthquake is considered with parametric trigger type -- annual maximum magnitude of the earthquake -- and the pricing formulas are derived. The second model presents a contingent claim model with the aggregate claims following compound forms where the claim inter-arrival times are dependent on the claim sizes by employing a two-dimensional semi-Markov process. The final model derives nuclear catastrophe (N-CAT) risk bond prices by extending the previous model. A two-coverage type trigger CAT bond is analysed by adding a perturbed state into the claims system, i.e. the system stops (N-CAT bond contract terminated) immediately after a major catastrophe.

Item Type: Unspecified
Additional Information: Date: 2015-10 (completed)
Subjects: Q Science > QA Mathematics
Depositing User: Symplectic Admin
Date Deposited: 17 Dec 2015 09:17
Last Modified: 29 May 2019 07:24
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