Pricing of Catastrophe Swap
Date Issued
2009
Date
2009
Author(s)
Lo, I-Peng
Abstract
There is a growing evidence that the coming years will see a rise in both the frequency and severity of natural disasters. The increased frequency of natural disasters coincides with the increasing concentration of population and assets in disaster prone areas which leads to growing economic losses. Though various kinds of financing instruments have been developed against catastrophe risks, because of the previous reasons plus the shrink of reinsurance market in the world, we still can not help but find out new methods to fight against this unavoidable trend. This study develops a whole new aspect of contingent-claim model for hedging the catastrophe risk. We describe the framework of the new hedging strategy - catastrophe swap - as detail as possible and compute the exchange amount of CAT swap contract by Monte Carlo Simulation. Last but not least, this article reveals the most powerful back-up, net cash flow and utility comparison between different strategies, to prove the practicability and favorableness of our catastrophe swap model.
Subjects
Catastrophe risk
Catastrophe swap contract
Catastrophe insurance
Type
thesis
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ntu-98-R95723032-1.pdf
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