Catastrophe Risk Management - Implications of Default Risk and Basis Risk

摘要: A major problem for insuring catastrophic risk is that, as a disaster causes damages to many insureds at the same time, such insurance and in particular reinsurance contracts are often subject considerable default risk. On other hand, securitization of risk, example via catastrophe bond, can be designed completely avoid In cases, however, payout from an insurance-linked security tied some stochastic variable, index, which correlated, but not identical, with insured’s actual losses. Therefore, instrument will usually provide perfect hedge. There mismatch, so-called basis This paper investigates how trade off between respectively credit affects optimal management solutions, when (re)insurance used simultaneously. particular, impact on contract analysed.