Fair insurance guaranty premia in the presence of risk-based capital regulations, stochastic interest rate and catastrophe risk

An Integrated Approach to Pricing Catastrophe Reinsurance

“…The Merton approach has the advantage of linking the valuation of financial claims to the firm's assets and capital structure. Thus unlike the more recent approach to incorporate jumps and to integrate with the capital asset pricing model (CAPM) in order to analyze corporate bond spreads (e.g., Collin-Dufresne et al (2012) and Coval et al (2009)), our structural model builds upon the work of Duan et al (1995), Duan and Yu (2005), and Lee and Yu (2007) to properly allow for the asset, liability, interest rate, and cat loss dynamics.…”

A Celebration of the Ties That Bind Us: Connections between Actuarial Science and Mathematical Finance

“…The Merton approach has the advantage of linking the valuation of financial claims to the firm's assets and capital structure. Thus unlike the more recent approach to incorporate jumps and to integrate with the capital asset pricing model (CAPM) in order to analyze corporate bond spreads (e.g., Collin-Dufresne et al (2012) and Coval et al (2009)), our structural model builds upon the work of Duan et al (1995), Duan and Yu (2005), and Lee and Yu (2007) to properly allow for the asset, liability, interest rate, and cat loss dynamics.…”

Hedging Flood Losses Using Cat Bonds

“…The main weakness of these no-arbitrage pricing models is that it is almost impossible to find financial instruments in the marketplace that can replicate exactly the cash flows of a cat bond. In addition to this weakness, some researchers (such as Duan and Yu 2005) have argued that this risk diversification or noarbitrage argument is not applicable in all situations, particularly when the disaster is large enough to affect the whole economy. Even if a disaster would not affect the whole economy, the risk may still be non-diversifiable if the probability distribution of occurrence has a thick left tail.…”