Rational and mechanics of a peak risk variance swap for a property insurance portfolio
AbstractIn this technical report we explore the motivation, structuring and detailed mechanics of a variance swap contract adapted for a property insurance portfolio. We structure, price and test sensitivities of the swap contract using real event historical and modeled natural catastrophe loss data. Our key motivation is to propose an element of financial engineering innovation to insurance portfolio risk management to allow for constructing hedging strategies that may not be possible to achieve with traditional reinsurance treaties and contracts.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 38954.
Date of creation: 07 Apr 2012
Date of revision:
variance swap; peak catastrophe risk hedging; insurance portfolio risk management and risk transfer;
Find related papers by JEL classification:
- G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
- G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-29 (All new papers)
- NEP-IAS-2012-05-29 (Insurance Economics)
- NEP-RMG-2012-05-29 (Risk Management)
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