Abstract:We propose a regime-switching Poisson process incorporating climate and carbon dioxide (CO 2 ) indices (RPCM) to model hurricane frequency. Model accuracy shows that two-state RPCM (2-RPCM) is superior to the existing climate methods, as forecast errors under 2-RPCM are smaller than previous models by about 60-75 percent. We derive the pricing formula of reinsurance premiums by assuming the aggregate loss following the regime-switching compound process. Pricing errors under 2-RPCM for reinsurance premiums are … Show more
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