Hurricane Bond Price Dependency on Underlying Hurricane Parameters
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Carolyn W. Chang
und
Yalan Feng
Abstract
Hurricane bonds are parametric in nature as they have a dual-exercise structure: the first exercise is conditional on the hurricane’s physical landfall location and the second is conditional upon the embedded option ending in-the-money. We propose a coupled and physically-based hurricane bond pricing model via Monte Carlo simulation that resolves the dual exercise, which was not addressed in extant loss-based catastrophe bond pricing models. This coupled model is developed at the nexus of atmospheric science and finance by integrating hurricane risk modeling and option pricing. By applying this model to price a parametric hurricane bond, we demonstrate how a hurricane bond’s price is sensitive to its underlying hurricane’s physical parameters – genesis, heading, translation speed, velocity, and radius.
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Artikel in diesem Heft
- Featured Articles (Research Paper)
- Estimating China’s Future Life Insurance Market
- Hurricane Bond Price Dependency on Underlying Hurricane Parameters
- A Hybrid Equity Release Plan for Retirement Financing
- Utility-Consistent Valuation Schemes for the Own Risk and Solvency Assessment of Life Insurance Companies
- Featured Article
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