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Pricing Catastrophe Bonds under Safety Constraints

In: Managing Safety of Heterogeneous Systems

Author

Listed:
  • Shuo Liu

    (Beihang University)

  • Liyan Han

    (Beihang University)

Abstract

This chapter proposes an approach for catastrophe bonds (cat-bonds) pricing using stochastic balances of cash flows. Monte Carlo simulation model permits to overcome cat-bonds trading data shortage and sheds the light on the relations between cat-bond coupon rates, their issue volumes, and supply curves. This model controls the moral hazard risk and other stochastic imbalances of the cash flows through probabilistic safety constraints. The model is applied to the analysis of typhoon risk in China.

Suggested Citation

  • Shuo Liu & Liyan Han, 2012. "Pricing Catastrophe Bonds under Safety Constraints," Lecture Notes in Economics and Mathematical Systems, in: Yuri Ermoliev & Marek Makowski & Kurt Marti (ed.), Managing Safety of Heterogeneous Systems, edition 127, pages 367-378, Springer.
    • Handle: RePEc:spr:lnechp:978-3-642-22884-1_18
    DOI: 10.1007/978-3-642-22884-1_18
    as

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