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Elaborating a Catastrophic Loss Index for Insurance-linked Securities (ILS): A Continuous Model


  • Pérez-Fructuoso María José

    (Madrid Open University (UDIMA), Spain)


This paper proposes a continuous random modeling of catastrophic loss indexes underlying insurance-linked securities (ILS), by convolution of each catastrophic events amount of reported claims. This variable is calculated, in turn, as the difference between the catastrophes total severity, on one hand, and its amount of incurred-but-not-yet-reported claims, which is considered to be driven by a geometric Brownian motion, on the other hand. Parameters estimation and verification of the goodness-of-fit to a sample of data series on floods in Spain have subsequently been conducted in order to test the models validity.

Suggested Citation

  • Pérez-Fructuoso María José, 2009. "Elaborating a Catastrophic Loss Index for Insurance-linked Securities (ILS): A Continuous Model," Asia-Pacific Journal of Risk and Insurance, De Gruyter, vol. 3(2), pages 1-13, April.
  • Handle: RePEc:bpj:apjrin:v:3:y:2009:i:2:n:3

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    References listed on IDEAS

    1. Steven B. Caudill & Mercedes Ayuso & Montserrat Guillén, 2005. "Fraud Detection Using a Multinomial Logit Model With Missing Information," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(4), pages 539-550.
    2. Little, Roderick J A, 1985. "A Note about Models for Selectivity Bias," Econometrica, Econometric Society, vol. 53(6), pages 1469-1474, November.
    3. Joan T. Schmit & Jia-Hsing Yeh, 2003. "An Economic Analysis of Auto Compensation Systems: Choice Experiences From New Jersey and Pennsylvania," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 70(4), pages 601-628.
    4. Browne, Mark J & Puelz, Robert, 1999. "The Effect of Legal Rules on the Value of Economic and Non-economic Damages and the Decision to File," Journal of Risk and Uncertainty, Springer, vol. 18(2), pages 189-213, August.
    5. Horton N.J. & Lipsitz S.R. & Parzen M., 2003. "A Potential for Bias When Rounding in Multiple Imputation," The American Statistician, American Statistical Association, vol. 57, pages 229-232, November.
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