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The impact of the financial crisis and natural catastrophes on CAT bonds

  • Gürtler, M.
  • Hibbeln, M.
  • Winkelvos, C.
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    CAT bonds are important instruments for the insurance of catastrophe risk. Due to a low degree of deal standardization, there is uncertainty about the determination of the CAT bond premium. In addition, it is not apparent how CAT bonds react after the financial crisis or a natural catastrophe. We empirically verify which factors determine the CAT bond premium and what effects arise if a catastrophe occurs. On a broad data set using secondary market premiums we find strong evidence that the recent financial crisis has a significant impact on CAT bond premiums. Furthermore, we find that after hurricane Katrina an increased risk perception for hurricanes can be observed.

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    File URL: http://econstor.eu/bitstream/10419/64631/1/725704713.pdf
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    Paper provided by Technische Universität Braunschweig, Institute of Finance in its series Working Papers with number IF40V1.

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    Date of creation: 2012
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    Handle: RePEc:zbw:tbsifw:if40v1
    Contact details of provider: Postal: Pockelsstr. 14, D-38106 Braunschweig
    Web page: http://www.fiwi.tu-bs.de/
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    1. J. David Cummins & David Lalonde & Richard D. Phillips, 2000. "The Basis Risk of Catastrophic-Loss Index Securities," Center for Financial Institutions Working Papers 00-22, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Froot, Kenneth A., 2001. "The market for catastrophe risk: a clinical examination," Journal of Financial Economics, Elsevier, vol. 60(2-3), pages 529-571, May.
    3. Andrew Worthington & Abbas Valadkhani, 2003. "Measuring the impact of natural disasters on capital markets: An empirical application using intervention analysis," School of Economics and Finance Discussion Papers and Working Papers Series 154, School of Economics and Finance, Queensland University of Technology.
    4. J. David Cummins & Mary A. Weiss, 2009. "Convergence of Insurance and Financial Markets: Hybrid and Securitized Risk-Transfer Solutions," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(3), pages 493-545.
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