The thesis focuses on the description of an innovative model to price Catastrophe bonds triggered by multiple events with an extreme dependence structure. The thesis introduces the methods used by the insurance industry to mitigate catastrophic risk in specified flood risk. Flood risk is one of the major risks mitigated by the insurance and reinsurance industry in Europe. Through securitization, reinsurance transfers the catastrophic risks to the capital market. The most important financial instrument for securitization is the Catastrophe bond, which became popular in the mid-1990s, with the increasing frequency and severity of catastrophic events. Given the low contingency of the bond’s cash flows and high return of the CAT bond, the multiple-trigger Catastrophe bond offers an efficient way to transfer insurance related risk to the capital market, providing insurers more capacity and allowing investors to benefit from diversification and additional returns of the CAT bond. A multiple-trigger catastrophe bond is a Catastrophe bond activated if two trigger claims occur. The thesis conducts an empirical analysis, focusing on a simulation of the price of a Multi trigger catastrophe bond designed to cover flood risk. The method adopted to price the Multi trigger Catastrophe bond is the CIR-Copula-POT Model, which uses the Peak over threshold (POT) approach to describe the probability that an extreme event exceeds a determined threshold, the copula function theory to better describe the dependency between the multiple trigger indicators and the Cox-Ingersoll-Ross (CIR) model to compute a stochastic estimate of the interest rate of the CAT bond.

The role of Catastrophe bonds in mitigating flood risk

TRABUCCO, GIOVANNA
2024/2025

Abstract

The thesis focuses on the description of an innovative model to price Catastrophe bonds triggered by multiple events with an extreme dependence structure. The thesis introduces the methods used by the insurance industry to mitigate catastrophic risk in specified flood risk. Flood risk is one of the major risks mitigated by the insurance and reinsurance industry in Europe. Through securitization, reinsurance transfers the catastrophic risks to the capital market. The most important financial instrument for securitization is the Catastrophe bond, which became popular in the mid-1990s, with the increasing frequency and severity of catastrophic events. Given the low contingency of the bond’s cash flows and high return of the CAT bond, the multiple-trigger Catastrophe bond offers an efficient way to transfer insurance related risk to the capital market, providing insurers more capacity and allowing investors to benefit from diversification and additional returns of the CAT bond. A multiple-trigger catastrophe bond is a Catastrophe bond activated if two trigger claims occur. The thesis conducts an empirical analysis, focusing on a simulation of the price of a Multi trigger catastrophe bond designed to cover flood risk. The method adopted to price the Multi trigger Catastrophe bond is the CIR-Copula-POT Model, which uses the Peak over threshold (POT) approach to describe the probability that an extreme event exceeds a determined threshold, the copula function theory to better describe the dependency between the multiple trigger indicators and the Cox-Ingersoll-Ross (CIR) model to compute a stochastic estimate of the interest rate of the CAT bond.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/20.500.14247/25484