Natural Catastrophe Risk, Insurance and Economic Development

Catastrophe Insurance and Optimal Investment

In the insurance market, the insurers who provide catastrophe insurance face with the risk of rare, but huge catastrophe claims. The introduction of catastrophe related securities into the marketplace provide the insurers the instruments to hedge some of the catastrophe risks they are facing. A catastrophe related security is tied to the prespecified catastrophe claims, while independent to oth...

Pricing Catastrophe Insurance Derivatives

We investigate the valuation of catastrophe insurance derivatives that are traded at the Chicago Board of Trade. By modeling the underlying index as a compound Poisson process we give a representation of no-arbitrage price processes using Fourier analysis. This characterization enables us to derive the inverse Fourier transform of prices in closed form for every fixed equivalent martingale meas...

Hedging Natural Catastrophe Risk in Developing Countries

International ®nancial institutions like the World Bank are caught in the grip of two ®nancial forces: the increasing demand from developing countries for borrowing to cope with the costs of natural hazard losses, and stagnant budgets that have not increased with the demand on their resources. The squeeze creates interest on the part of these institutions in the possible use of catastrophe hedg...

Basis Risk with PCS Catastrophe Insurance Derivative Contracts

This study provides evidence of the potential hedging effectiveness of insurance derivatives based on regional estimates of catastrophe losses. We estimate the percentage of insurers’ by line and state underwriting risk that could have been eliminated over the 1974 through 1994 period if they had hedged using state-specific catastrophe derivatives based on Property Claims Service (PCS) reported...

Catastrophe Insurance and the Demand for Deductibles