Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5054110 | Economic Modelling | 2014 | 8 Pages |
Abstract
A catastrophe equity put (CatEPut) option is a catastrophe derivative that allows insurance companies to raise equity capital when they face catastrophe losses. This study focuses on a pricing model for a CatEPut options. First, unlike previous research, this study provides a CatEPut option pricing model in which stock prices and catastrophe losses are moderately correlated. Second, this study examines the practical characteristics of American CatEPut options. Third, through a numerical analysis, we observe that it is necessary to consider the effects of a moderate correlation between stock prices and catastrophe losses on the prices of perpetual American CatEPut options.
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Authors
Hwa-Sung Kim, Bara Kim, Jerim Kim,