Pricing of Multiple-Event Coupon Paying CAT Bond

45 Pages Posted: 10 Dec 2007 Last revised: 1 Mar 2008

Date Written: February 25, 2008

Abstract

The main focus of this paper is to develop a framework for pricing of a multiple-event coupon paying CAT bond. The model is the first of its kind to address theoretical issues of pricing of an insurance-linked security that derives its value based on two underlying processes: catastrophic insured property losses and catastrophic mortality. It is also the first study that develops a CAT bond with a multiple-event structure. In addition, this work provides a numerical evaluation of the bond's price using the UK catastrophic data provided by Swiss Re. The findings of our analysis may be interesting to insurance and reinsurance companies and other financial institutions that want to transfer their exposure to catastrophic risks, including risk of terrorism, to capital markets.

Keywords: Reinsurance, Multiple-Event CAT Bond

JEL Classification: G14, G15, G18, G22, G28

Suggested Citation

Reshetar, Ganna, Pricing of Multiple-Event Coupon Paying CAT Bond (February 25, 2008). Available at SSRN: https://ssrn.com/abstract=1059021 or http://dx.doi.org/10.2139/ssrn.1059021

Ganna Reshetar (Contact Author)

Deloitte AG ( email )

Guisan-Quai 38
Zurich, 8002
Switzerland

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