Article ID Journal Published Year Pages File Type
5069867 Finance Research Letters 2010 8 Pages PDF
Abstract
This note provides a simple closed form solution for valuing Cat bonds. The formula is consistent with any arbitrage-free model for the evolution of the Libor term structure of interest rates. The crucial inputs to the valuation formula are the likelihood of the catastrophe event, per unit time, and the percentage loss rate realized if an event occurs. The pricing methodology is based on the reduced form models used to price credit derivatives.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
Authors
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