Abstract
This study develops a contingent-claim framework for valuing a reinsurance contract and examines how a reinsurance company can increase the value of a reinsurance contract and reduce its default risk by issuing catastrophe (CAT) bonds. The results also show how the changes in contract values and default risk premium are related to basis risk, trigger level, catastrophe risk, interest rate risk, and the reinsurer’s capital position.
Volume
41
Page
264 ‐ 278
Number
2
Year
2007
Keywords
Reinsurance; catastrophe risk; Catastrophe bonds; Default Risk; Basis risk; Contingent-claim analysis
Categories
Catastrophe Risk
Reinsurance and Alternative Risk Transfer
Publications
Insurance: Mathematics and Economics
