Pricing catastrophe risk bonds : A mixed approximation method

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      <subfield code="a">Pricing catastrophe risk bonds</subfield>
      <subfield code="b">: A mixed approximation method</subfield>
      <subfield code="c">Zong-Gang Ma,  Chao-Qun Ma</subfield>
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      <subfield code="a">This paper presents a contingent claim model similar to the one described by Lee and Yu (2002) for pricing catastrophe risk bonds. First, we derive a bond pricing formula in a stochastic interest rates environment with the losses following a compound nonhomogeneous Poisson process. Furthermore, we estimate and calibrate the parameters of the pricing model using the catastrophe loss data provided by Property Claim Services (PCS) from 1985 to 2010. As no closed-form solution can be obtained, we propose a mixed approximation method to find the numerical solution for the price of catastrophe risk bonds. Finally, numerical experiments demonstrate how financial risks and catastrophic risks affect the prices of catastrophe bonds.

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      <subfield code="w">MAP20077100574</subfield>
      <subfield code="t">Insurance : mathematics and economics</subfield>
      <subfield code="d">Oxford : Elsevier, 1990-</subfield>
      <subfield code="x">0167-6687</subfield>
      <subfield code="g">04/03/2013 Volumen 52 Número 2 - marzo 2013 </subfield>
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