Fair Insurance Guaranty Premia in the Presence of Risk-Based Capital Regulations, Stochastic Interest Rate and Catastrophe Risk
نویسندگان
چکیده
A multiperiod model is developed to measure the costs posed to the guaranty fund in a setting that incorporates risk-based capital regulations, interest rate risk and the possibility of catastrophic losses. The guaranty contract is modeled as a put option on the asset of the insurance company with a stochastic strike price and an uncertain maturity. The impacts of the key factors of this model are examined numerically and shown to make material differences in the costs to the guaranty fund. JEL classification: G20, G28
منابع مشابه
Cost to Insurance Guaranty Fund with Interest Rate and Catastrophe Risks
A multiperiod model is developed to measure the costs to the guaranty fund for insurers by incorporating asset credit risk, liability catastrophe risk, interest rate risk, timing of failure resolution, and moral hazard. We model the regulatory reality of capital forbearance and the use of liquidation as a typical resolution practice. The guaranty contract is viewed as a put option with a stocha...
متن کاملDiscussion on “ Capital Forbearance , Ex Ante Life Insurance Guaranty Schemes , and Interest Rate Uncertainty
Professors Hwang, Chang and Wu are to be congratulated for this interesting paper. The authors study ex ante insurance guaranty schemes. In particular, capital forbearance mechanism and stochastic interest rate are incorporated in their model, and an explicit formula for the risk-based premium of the insurance guaranty fund is derived. I am especially interested in Section 2.3 and Appendix A. I...
متن کاملStochastic modelling of catastrophe risks in DFA models
Negative developments on the capital markets at the beginning of the millennium along with the increase in natural catastrophes and terrorist attacks have substantially altered the risk situation of the insurance industry. Insurance companies have reacted to the altered prevailing conditions with a paradigm shift in corporate strategy developing from classical turnover orientation to valueand r...
متن کاملRisk and Valuation of Mortality Contingent Catastrophe Bonds
Catastrophe Mortality Bonds are a recent capital market innovation providing insurers and reinsurers with the possibility to transfer catastrophe mortality risk off their balance sheets to capital markets. This article introduces a time-continuous model for analyzing and pricing catastrophe mortality contingent claims based on stochastic modeling of the force of mortality. In addition, we give ...
متن کاملThe Value of Deposit Insurance in the Presence of Interest Rate and Credit Risk
In this paper we employ the theory of the term structure of interest rates and the pricing of interest contingent contracts to determine the fair value of insurance for depository institutions. The balance sheet of a bank is taken to consist of long and short positions in various fixed income securities. Deposit insurance for the bank is a put option on the value of the assets. The value of dep...
متن کامل