A Quadratic Hedging Approach To Comparison Of Catastrophe Indices
AbstractThe present study addresses the problem of designing a catastrophe derivative that insurers can use to hedge catastrophe-related losses in an incomplete market. The losses are modeled as a doubly stochastic compound Poisson process with shot-noise intensity. The hedging capability of a derivative is measured by the reduction of the mean squared hedging error resulting from optimal trading in the derivative. A general form of this measure is obtained in terms of the coefficients in the martingale dynamics of the loss process and the price process of the derivative. Six specific derivatives, with pay-offs depending in different ways on available catastrophe indices and portfolio data, are compared by the proposed criterion.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Journal of Theoretical and Applied Finance.
Volume (Year): 15 (2012)
Issue (Month): 04 ()
Contact details of provider:
Web page: http://www.worldscinet.com/ijtaf/ijtaf.shtml
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Tai Tone Lim).
If references are entirely missing, you can add them using this form.