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Pricing Catastrophe Derivatives Using A Recursive Evaluation Approach* (2008)
BibTeX
@MISC{Liu08pricingcatastrophe,
author = {Yu-hong Liu and I-ming Jiang},
title = {Pricing Catastrophe Derivatives Using A Recursive Evaluation Approach*},
year = {2008}
}
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Abstract
This paper assumes that the underlying aggregate catastrophe claims process is the compound Poisson process and applies the recursive evaluation approach to compute the compound Poisson distribution. A novel, practical pricing model is developed for catastro-phe insurance derivatives. The proposed pricing model simplifies the procedure of prob-ability computation, particularly for massive catastrophe claims, and helps hedging in-surance companies apply probability assessment techniques to identify derivative prices. The recursive evaluation approach to price catastrophe derivatives is more effective than the conventional Monte Carlo simulation scheme in terms of the required computing time and precision.
Keyphrases
recursive evaluation approach catastrophe derivative required computing time massive catastrophe claim pricing model probability assessment technique conventional monte carlo simulation scheme prob-ability computation in-surance company catastro-phe insurance derivative practical pricing model price catastrophe derivative aggregate catastrophe claim process derivative price compound poisson distribution compound poisson process
