Pricing Catastrophe Insurance Products Based on Actually Reported Claims

This paper deals with the problem of pricing a financial product relying on an index of reported claims from catastrophe insurance. The problem of pricing such products is that, at a fixed time in the trading period, the total claim amount from the catastrophes occurred is not known. Therefore, one has to price these products solely from knowing the aggregate amount of the reported claims at the fixed time point. This paper will propose a way to handle this problem, and will thereby extend the existing pricing models for products of this kind.

Keywords: Insurance futures; Derivatives; Claims-process; Catastrophe insurance; Mixed Poisson model; Change of measure; Expected utility; Approximations