Valuing catastrophe bonds involving correlation and CIR interest rate model

Nowak, Piotr; Romaniuk, Maciej

doi:10.1007/s40314-016-0348-2

Cited by 22 publications

(11 citation statements)

References 41 publications

Supporting

Mentioning

Contrasting

Order By: Relevance

“…This has become known as earthquake-insurance-linked securities (EILS). The most successful financial instruments in EILS are bonds [19][20][21]. Compared to other financial instruments, bonds can raise significant funds quickly; however, they also involve moderate levels of risk [14].…”

Section: Type Of Catastrophementioning

confidence: 99%

How to Price Catastrophe Bonds for Sustainable Earthquake Funding? A Systematic Review of the Pricing Framework

2023

View full text Add to dashboard Cite

Earthquake contingency costs in traditional insurance cannot provide sufficient earthquake funding for a country because they often differ significantly from actual losses. Over the last three decades, this approach has been replaced by linking earthquake insurance to bonds in the capital market; this is now known as the earthquake catastrophe bond (ECB). Through the ECB, contingency costs become larger and more sustainable earthquake funds. Unfortunately, there are challenges in ECB issuance, as the pricing framework does not yet have standard rules and still needs to be studied. Therefore, the objective of this study is to systematically review how the ECB pricing framework is designed. The method used in this review is PRISMA. First, articles aiming to design an ECB pricing framework were collected from the Scopus, Science Direct, and Dimensions databases on 22 March 2023. Then, the results were selected, resulting in eleven relevant articles. Then, the articles’ pricing frameworks were reviewed based on variables, methods, trigger events, coupon and redemption value payment schemes, and the model solution forms. Finally, several research opportunities for academics are also outlined. This research constitutes a reference for ECB issuers during the pricing process and can motivate academics to design more useful ECB pricing models.

show abstract

Section: Type Of Catastrophementioning

confidence: 99%

How to Price Catastrophe Bonds for Sustainable Earthquake Funding? A Systematic Review of the Pricing Framework

2023

View full text Add to dashboard Cite

show abstract

“…Vazquez and Clempner [19] developed a portfolio technique based on a Lagrangian regularization method. The literature differs depending on whether you use continuous or discrete time, a finite or infinite horizon, and so on [20][21][22][23][24][25][26].…”

Section: Related Workmentioning

confidence: 99%

Sharpe-Ratio Portfolio in Controllable Markov Chains: Analytic and Algorithmic Approach for Second Order Cone Programming

2022

View full text Add to dashboard Cite

The Sharpe ratio is a measure based on the theory of mean variance, it is the measure of the performance of a portfolio when the risk can be measured through the standard deviation. This paper suggests a Sharpe-ratio portfolio solution using a second order cone programming (SOCP). We use the penalty-regularized method to represent the nonlinear portfolio problem. We present a computationally tractable way to determining the Sharpe-ratio portfolio. A Markov chain structure is employed to represent the underlying asset price process. In order to determine the optimal portfolio in Markov chains, a new hybrid optimization programming method for SOCP is proposed. The suggested method’s efficiency and efficacy are demonstrated using a numerical example.

show abstract

“…We combine the non-mean reverting Cox-Ingersoll-Ross and Ornstein-Uhlenbeck stochastic processes to form the joint mortality model proposed. Many applications of these processes appear in the financial and insurance mathematics literature, and the interested reader may refer to Liang et al (2011), Nowak and Romaniuk (2018) and Dassios et al (2019) for examples of such applications.…”

Section: Review Of Existing Literaturementioning

confidence: 99%

Stochastic Mortality Modelling for Dependent Coupled Lives

Henshaw

Constantinescu

Pamen

2020

Risks

View full text Add to dashboard Cite

Broken-heart syndrome is the most common form of short-term dependence, inducing a temporary increase in an individual’s force of mortality upon the occurrence of extreme events, such as the loss of a spouse. Socioeconomic influences on bereavement processes allow for suggestion of variability in the significance of short-term dependence between couples in countries of differing levels of economic development. Motivated by analysis of a Ghanaian data set, we propose a stochastic mortality model of the joint mortality of paired lives and the causal relation between their death times, in a less economically developed country than those considered in existing studies. The paired mortality intensities are assumed to be non-mean-reverting Cox–Ingersoll–Ross processes, reflecting the reduced concentration of the initial loss impact apparent in the data set. The effect of the death on the mortality intensity of the surviving spouse is given by a mean-reverting Ornstein–Uhlenbeck process which captures the subsiding nature of the mortality increase characteristic of broken-heart syndrome. Inclusion of a population wide volatility parameter in the Ornstein–Uhlenbeck bereavement process gives rise to a significant non-diversifiable risk, heightening the importance of the dependence assumption in this case. Applying the model proposed to an insurance pricing problem, we obtain the appropriate premium under consideration of dependence between coupled lives through application of the indifference pricing principle.

show abstract

Valuing catastrophe bonds involving correlation and CIR interest rate model

Cited by 22 publications

References 41 publications

How to Price Catastrophe Bonds for Sustainable Earthquake Funding? A Systematic Review of the Pricing Framework

How to Price Catastrophe Bonds for Sustainable Earthquake Funding? A Systematic Review of the Pricing Framework

Sharpe-Ratio Portfolio in Controllable Markov Chains: Analytic and Algorithmic Approach for Second Order Cone Programming

Stochastic Mortality Modelling for Dependent Coupled Lives

Contact Info

Product

Resources

About