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Insuring against Terrorism: The Policy Challenge, paper presented at the joint
- BrookingsWharton Conference on Financial Services, January 8–9, Brookings Institution
, 2004
"... The terrorist attacks during the past decade in London, Israel, the United States and elsewhere have spurned an interest in understanding not only how governments can mitigate terrorism risk but also how governments might help finance future losses. A burgeoning academic literature – and, not surpri ..."
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Cited by 30 (1 self)
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The terrorist attacks during the past decade in London, Israel, the United States and elsewhere have spurned an interest in understanding not only how governments can mitigate terrorism risk but also how governments might help finance future losses. A burgeoning academic literature – and, not surprisingly, an intense lobbying effort by
Basis Risk with PCS Catastrophe Insurance Derivative Contracts
- Journal of Risk and Insurance
, 1999
"... This study provides evidence of the potential hedging effectiveness of insurance derivatives based on regional estimates of catastrophe losses. We estimate the percentage of insurers ’ by line and state underwriting risk that could have been eliminated over the 1974 through 1994 period if they had h ..."
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Cited by 15 (1 self)
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This study provides evidence of the potential hedging effectiveness of insurance derivatives based on regional estimates of catastrophe losses. We estimate the percentage of insurers ’ by line and state underwriting risk that could have been eliminated over the 1974 through 1994 period if they had hedged using state-specific catastrophe derivatives based on Property Claims Service (PCS) reported losses. The results indicate that state-specific PCS catastrophe derivatives would have provided effective hedges for many insurers, especially those selling homeowners insurance. These findings suggest that basis risk is not likely to be a significant problem with state-specific catastrophe derivative contracts. We also compare the hedging effectiveness of state-specific catastrophe contracts to regional catastrophe contracts and to state-specific contracts based on by-line loss ratios.
Using Catastrophe-Linked Securities to Diversify Insurance Risk: A Financial Analysis of
"... Abstract: Severe natural catastrophes in the early 1990s generated a lack of financial capacity in the catastrophe line of the global reinsurance market. The finance industry reacted to this situation by issuing innovative products designed to spread the excess risk more widely among international i ..."
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Cited by 9 (2 self)
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Abstract: Severe natural catastrophes in the early 1990s generated a lack of financial capacity in the catastrophe line of the global reinsurance market. The finance industry reacted to this situation by issuing innovative products designed to spread the excess risk more widely among international investors (risk securitization). The paper reviews these developments and emphasizes their significance with respect to the economic theory of risk exchanges. Special attention is devoted to the case of catastrophe-linked bonds, issued by ceding insurers to secure ex post conditional capital for the payment of claims. We analyze these new securities as financial portfolios combining a straight bond and catastrophe options. Using option pricing theory and simulation analysis in a stochastic interest rate environment, we show that investors attracted by the potential for diversification benefits should not overlook the optional features when including these securities in an asset portfolio. [Keywords: insurance, cat bonds, cat options, investment.] P
www.palgrave-journals.com/gpp Insurability of Climate Risks
"... The IPCC 2007 report noted that both the frequency and strength of hurricanes, floods and droughts have increased during the past few years. Thus, climate risk, and more specifically natural catastrophes, are now hardly insurable: losses can be huge (and the actuarial pure premium might even be infi ..."
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Cited by 6 (0 self)
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The IPCC 2007 report noted that both the frequency and strength of hurricanes, floods and droughts have increased during the past few years. Thus, climate risk, and more specifically natural catastrophes, are now hardly insurable: losses can be huge (and the actuarial pure premium might even be infinite), diversification through the central limit theorem is not possible because of geographical correlation (a lot of additional capital is required), there might exist no insurance market since the price asked by insurance companies can be much higher than the price householders are willing to pay (short-term horizon of policyholders), and, due to climate change, there is more uncertainty (and thus additional risk). The first idea we will discuss in this paper, about insurance markets and climate risks, is that insurance exists only if risk can be transferred, not only to reinsurance companies but also to capital markets (through securitization or catastrophes options). The second one is that climate is changing, and therefore, not only prices and capital required should be important, but also uncertainty can be very large. It is extremely difficult to insure in a changing environment.
Multi-GPU Computing for Achieving Speedup in Real-time Aggregate Risk Analysis. High Performance Computing on Graphics Processing Units (hgpu.org
, 2013
"... Abstract—Stochastic simulation techniques employed for portfolio risk analysis, often referred to as Aggregate Risk Analysis, can benefit from exploiting state-of-the-art high-performance computing platforms. In this paper, we propose parallel methods to speedup aggregate risk analysis for sup-porti ..."
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Abstract—Stochastic simulation techniques employed for portfolio risk analysis, often referred to as Aggregate Risk Analysis, can benefit from exploiting state-of-the-art high-performance computing platforms. In this paper, we propose parallel methods to speedup aggregate risk analysis for sup-porting real-time pricing. To achieve this an algorithm for analysing aggregate risk is proposed and implemented in C and OpenMP for multi-core CPUs and in C and CUDA for many-core GPUs. An evaluation of the performance of the algorithm indicates that GPUs offer a feasible alternative solution over traditional high-performance computing systems. An aggregate simulation on a multi-GPU of 1 million trials with 1000 catastrophic events per trial on a typical exposure set and contract structure is performed in less than 5 seconds. The key result is that the multi-GPU implementation of the algorithm presented in this paper is approximately 77x times faster than the traditional counterpart and can be used in real-time pricing scenarios. Keywords-GPU computing; high-performance computing; aggregate risk analysis; catastrophe event risk; real-time pric-ing I.
Insuring Large-Scale Floods in the Netherlands
"... Without its primary flood defenses, a large part of the Netherlands would be swallowed by rivers and the sea. Floods caused by the failure of primary flood defenses are high-impact, low-probability events that are notoriously difficult to insure. Private insurance was long considered unfeasible but ..."
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Without its primary flood defenses, a large part of the Netherlands would be swallowed by rivers and the sea. Floods caused by the failure of primary flood defenses are high-impact, low-probability events that are notoriously difficult to insure. Private insurance was long considered unfeasible but the Dutch government is currently studying ways to introduce a public–private insurance program. This paper offers a discussion of variables that should be taken into account in the choice for an arrangement for the financing of large-scale floods in the Netherlands. Because flood risk is highly concentrated and potential losses could be severe, a strong government role seems inevitable. But this would not necessarily be inappropriate as this could reduce the risk of underinvestment in flood protection.
The Hardware Accelerator Debate: A Financial Risk Case Study Using Many-Core Computing
"... The risk of reinsurance portfolios covering globally occurring natural catastrophes, such as earthquakes and hurri-canes, is quantified by employing simulations. These simulations are computationally intensive and require large amounts of data to be processed. The use of many-core hardware accelerat ..."
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The risk of reinsurance portfolios covering globally occurring natural catastrophes, such as earthquakes and hurri-canes, is quantified by employing simulations. These simulations are computationally intensive and require large amounts of data to be processed. The use of many-core hardware accelerators, such as the Intel Xeon Phi and the NVIDIA Graphics Processing Unit (GPU), are desirable for achieving high-performance risk analytics. In this paper, we set out to investigate how accelerators can be employed in risk analytics, focusing on developing parallel algo-rithms for Aggregate Risk Analysis, a simulation which computes the Probable Maximum Loss of a portfolio taking both primary and secondary uncertainties into account. The key result is that both hardware accelerators are useful in different contexts; without taking data transfer times into account the Phi had lowest execution times when used independently and the GPU along with a host in a hybrid platform yielded best performance.
Are Clouds Ready to Accelerate Ad hoc Financial Simulations?
"... Abstract—Applications employed in the financial services industry to capture and estimate a variety of risk metrics are underpinned by stochastic simulations which are data, memory and computationally intensive. Many of these simulations are routinely performed on production-based computing systems. ..."
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Abstract—Applications employed in the financial services industry to capture and estimate a variety of risk metrics are underpinned by stochastic simulations which are data, memory and computationally intensive. Many of these simulations are routinely performed on production-based computing systems. Ad hoc simulations in addition to routine simulations are required to obtain up-to-date views of risk metrics. Such simulations are currently not performed as they cannot be accommodated on production clusters, which are typically over committed resources. Scalable, on-demand and pay-as-you go Virtual Machines (VMs) offered by the cloud are a potential platform to satisfy the data, memory and computational constraints of the simulation. However, “Are clouds ready to accelerate ad hoc financial simulations?” The research reported in this paper aims to experimentally verify this question by developing and deploying an important financial simulation, referred to as ‘Aggregate Risk Analysis’ on the cloud. Parallel techniques to improve efficiency and per-formance of the simulations are explored. Challenges such as accommodating large input data on limited memory VMs and rapidly processing data for real-time use are surmounted. The key result of this investigation is that Aggregate Risk Analysis can be accommodated on cloud VMs. Acceleration of up to 24x using multiple hardware accelerators over the implementation on a single accelerator, 6x over a multiple core implementation and approximately 60x over a baseline implementation was achieved on the cloud. However, computational time is wasted for every dollar spent on the cloud due to poor acceleration over multiple virtual cores. Interestingly, private VMs can offer better performance than public VMs on comparable underlying hardware. Keywords-cloud computing; heterogeneous computing; Ag-gregate Risk Analysis; financial risk; risk simulation I.
On Optimal Reinsurance Arrangement
"... The purpose of this paper is to develop a theoretical framework within which the optimal reinsurance arrangement for catastrophic risks is explored and derived. In the model, it is assumed that the insurer values the stability of its underwriting results in purchasing reinsurance protection. The opt ..."
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The purpose of this paper is to develop a theoretical framework within which the optimal reinsurance arrangement for catastrophic risks is explored and derived. In the model, it is assumed that the insurer values the stability of its underwriting results in purchasing reinsurance protection. The optimal solutions to the model are obtained through numerical simulation and intend to provide justifications and explanations for the profile of reinsurance purchase that has been observed in practice.
Catastrophe Risk Sharing and Public-Private Partnerships: From Natural Disasters to Terrorism
, 2008
"... Résumé: Plusieurs catastrophes récentes appellent à reconsidérer le rôle des secteurs public et privé dans l'élaboration et le suivi de mécanismes de couverture des risques catastrophiques. Le développement de partenariats public-privé apparaît aujourd'hui l'une des voies prometteuses ..."
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Résumé: Plusieurs catastrophes récentes appellent à reconsidérer le rôle des secteurs public et privé dans l'élaboration et le suivi de mécanismes de couverture des risques catastrophiques. Le développement de partenariats public-privé apparaît aujourd'hui l'une des voies prometteuses pour résoudre la problématique du financement des conséquences de tels événements à grande échelle. Néanmoins, à ce jour, peu de travaux analysent le rôle respectif des secteurs public et privé quant au développement de tels schémas de couverture adaptés à ces risques particuliers ainsi que l'efficacité des partages de risques public-privé qui en découlent. Cet article propose des éléments de réponse à travers une approche de politiques économiques portant sur le partage de ces risques entre assureurs privés et un réassureur public disposant d'une garantie illimitée du Trésor. Ces deux acteurs participent à un partenariat national dédié spécifiquement à la couverture de risques extrêmes, dans lequel la couverture "catastrophes " est obligatoire et la politique de "surprime catastrophes", payée par les assurés, est décidée par la direction du Trésor. Utilisant un modèle de jeu, nous montrons que dans un pays où les assureurs ont d'abord refusé de
