Explaining the Excess Spread Premiums on Catastrophe Bonds
Date Issued
2008
Date
2008
Author(s)
Lei, Debra
Abstract
The purpose of this article is to explain the excess spread premiums of CAT bonds, i.e., the risk premiums investors ask. Issuing data of nonlife CAT bonds during 1997 and 2007 are analyzed. We find that the probability of exhaustion (POE) is the factor investors care most. Moreover, the pricing behavior has changed after Hurricane Katrina, the first publicly acknowledged CAT bond with total loss of principal. While more emphasis has been put on POE, the offering size of the bond and the rating become less informative for the price of the bond.
Subjects
CAT bonds
pricing
issuing price
spread
catastrophe insurance
Type
thesis
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ntu-97-R94723093-1.pdf
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