A simple robust model for Cat bond valuation

This note provides a simple closed form solution for valuing Cat bonds. The formula is consistent with any arbitrage-free model for the evolution of the Libor term structure of interest rates. The crucial inputs to the valuation formula are the likelihood of the catastrophe event, per unit time, and the percentage loss rate realized if an event occurs. The pricing methodology is based on the reduced form models used to price credit derivatives.

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Year of publication:	2010
Authors:	Jarrow, Robert A.
Published in:	Finance Research Letters. - Elsevier, ISSN 1544-6123. - Vol. 7.2010, 2, p. 72-79
Publisher:	Elsevier
Keywords:	Cat bond Reinsurance Reduced form model Catastrophe events

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Type of publication:	Article
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10008499380