2019
DOI: 10.1016/j.insmatheco.2019.09.008
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Pricing industry loss warranties in a Lévy–Frailty framework

Abstract: We propose a novel risk-neutral pricing approach for industry loss warranties. In doing so, we explicitly take into account the statistical dependence of the losses on individual policies in the underlying insurance portfolio, caused by the occurrence of a natural catastrophe. Inspired by recent advances in the structured credit literature, we model joint claim events in a Lévy-Frailty framework with a stochastic time change. Event time is driven by rare and large jumps of a compound Poisson subordinator and t… Show more

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Cited by 5 publications
(1 citation statement)
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“…The cat bond can raise significant funds quickly with moderate financial risk. The cat bond was first published by Hannover RE in 1994 [6][7][8]. Then, another cat bond was issued in 2006 by Mexico, which was devoted to shifting the risk of earthquake catastrophe [9,10].…”
Section: Introductionmentioning
confidence: 99%
“…The cat bond can raise significant funds quickly with moderate financial risk. The cat bond was first published by Hannover RE in 1994 [6][7][8]. Then, another cat bond was issued in 2006 by Mexico, which was devoted to shifting the risk of earthquake catastrophe [9,10].…”
Section: Introductionmentioning
confidence: 99%