Valuation of contingent convertible catastrophe bonds — The case for equity conversion

Burnecki, Krzysztof; Giuricich, Mario Nicoló; Palmowski, Zbigniew

doi:10.1016/j.insmatheco.2019.07.006

Cited by 15 publications

(11 citation statements)

References 63 publications

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“…While the knowledge q is irrelevant and only the value ofη matters to evaluate European option, to price a catastrophic put option q is fundamental because it allows to infer η fromη. Following the approach proposed in Jaimungal and Wang (2006) and applied in the related literature (see Hung 2009 andBurnecki et al 2019), the trigger level of losses is assumed to be a multiple ν of the expected loss size conditional on the occurrence of a catastrophic event, that is…”

Section: Calibrationmentioning

confidence: 99%

“…Following the approach proposed in Jaimungal and Wang ( 2006 ) and applied in the related literature (see Chang and Hung 2009 and Burnecki et al. 2019 ), the trigger level of losses is assumed to be a multiple of the expected loss size conditional on the occurrence of a catastrophic event, that is The parameter is the trigger ratio level, which represents the ratio of the trigger level to the expected loss amount conditional on the occurrence of a catastrophic event.…”

Section: Empirical Analysismentioning

confidence: 99%

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Catastrophic risks and the pricing of catastrophe equity put options

et al. 2021

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In this paper, after a review of the most common financial strategies and products that insurance companies use to hedge catastrophic risks, we study an option pricing model based on processes with jumps where the catastrophic event is captured by a compound Poisson process with negative jumps. Given the importance that catastrophe equity put options (CatEPuts) have in this context, we introduce a pricing approach that provides not only a theoretical contribution whose applicability remains confined to purely numerical examples and experiments, but which can be implemented starting from real data and applied to the evaluation of real CatEPuts. We propose a calibration framework based on historical log-returns, market capitalization and option implied volatilities. The calibrated parameters are then considered to price CatEPuts written on the stock of the main Italian insurance company over the high volatile period from January to April 2020. We show that the ratio between plain-vanilla put options and CatEPuts strictly depends on the shape of the implied volatility smile and it varies over time.

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Section: Calibrationmentioning

confidence: 99%

Section: Empirical Analysismentioning

confidence: 99%

Catastrophic risks and the pricing of catastrophe equity put options

et al. 2021

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“…e average density of the overlying rock mass is 2800 kg/m 3 , and the vertical stress is 3.976 MPa. Because the upper orebody is dominated by sedimentary lead-zinc deposits, the horizontal stress is Advances in Civil Engineering 6.480 MPa as calculated according to [13].…”

Section: Engineering Examplementioning

confidence: 99%

“…e catastrophe theory, as a branch of the nonlinear theory, can study the characteristics of a system changing with the change of its control parameters, especially when the parameters change the performance of the system to cause catastrophe under certain conditions [10][11][12]. At present, the catastrophe theory has been widely used in economics and physics [13,14]. Due to failure of rock mass with the characteristics of energy accumulation and sudden release, in recent years, many achievements have been made in the research of rock mass instability based on the catastrophe theory.…”

Section: Introductionmentioning

confidence: 99%

Determination of Intervening Pillar Thickness Based on the Cusp Catastrophe Model

Luo

et al. 2019

Advances in Civil Engineering

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For the stability of the intervening pillar of the sublevel drilling open-stope subsequent filling mining method, the multifactor stability mechanical model of the intervening pillar under two different constraint conditions (Model 1 and Model 2) was established based on the elastic thin plate theory. Then, the cusp catastrophe equation and the necessary and sufficient conditions for the instability of the intervening pillar under two different constraint conditions were obtained by using the cusp catastrophe theory. Furthermore, the minimum thickness formula for the intervening pillar without instability under two different constraint conditions was derived, and the relationships between the minimum thickness of the intervening pillar and the factors, including the depth of the stope, the inclination of the orebody, the thickness of the orebody, the height of the stage, the length of the stope, and the mechanical properties of the orebody, were analyzed. Finally, the formula was used in the design of an intervening pillar between stopes 4-1 and 4-2 in Panlong Lead-Zinc Mine. The designed thickness of the pillar was 6.01 m by calculation, its actual thickness was 6.35–7.25 m in the mining process, and its average thickness was 6.5 m. Compared with the previously designed thickness of 7-8 m at the same stage, the pillar was 0.5–1.5 m smaller, which more effectively improved the recovery rate of the ore under the premise of ensuring the stability of the intervening pillar. This example of industrial application proves that it is feasible to use the cusp catastrophe theory to analyze the stability and parameter design of the intervening pillar under different constraints.

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“…Discounted price process is martingale at . Measurement which fulfills the points a. and b. this is what is called the risk neutral measurement [15]. Risk neutral measurement is a probability measure where the share price is equal to the expected value of a stock discount.…”

Section: Cat Bond Price Estimation Modelmentioning

confidence: 99%

Estimation of the Catastrophe Bonds Price by using Risk Neutral Measurement

Sukono*,

Susanti,

Lesmana

et al. 2019

IJRTE

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Catastrophe Bonds (CAT bonds) or disaster bonds are securities products that work by transferring risk in the form of natural disaster losses to the capital market, so that it is necessary to estimate CAT bond prices. This study intends to discuss the model to determine the price of CAT bonds in arbitrage-free scope based on the approach of risk neutral measurement. The data used is extreme data in the form of losses due to natural disasters in the range of 2000-2019. There are several stages carried out in this study. The first step is to calculate descriptive data statistics. Then, estimating the data parameters using the Maximum Likelihood Estimation (MLE) method assuming the data distributed Generalized Extreme Value (GEV). Next, determine the price of CAT bond using the formula of risk neutral measurement. From the results of the analysis carried out, the CAT bond price is USD98.63, and there is the effect of risk neutral measurement on the price of CAT bonds paid by investors.

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Valuation of contingent convertible catastrophe bonds — The case for equity conversion

Cited by 15 publications

References 63 publications

Catastrophic risks and the pricing of catastrophe equity put options

Catastrophic risks and the pricing of catastrophe equity put options

Determination of Intervening Pillar Thickness Based on the Cusp Catastrophe Model

Estimation of the Catastrophe Bonds Price by using Risk Neutral Measurement

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