Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/233745 
Year of Publication: 
2021
Citation: 
[Journal:] Journal of Risk and Insurance [ISSN:] 1539-6975 [Volume:] 88 [Issue:] 3 [Publisher:] Wiley [Place:] Hoboken, NJ [Year:] 2021 [Pages:] 785-818
Publisher: 
Wiley, Hoboken, NJ
Abstract: 
We develop a conceptual framework to model the seasonality in the probability of catastrophe bonds being triggered. This seasonality causes strong seasonal fluctuations in spreads. For example, the spread on a hurricane bond is highest at the start of the hurricane season and declines as time goes by without a hurricane. The spread is lowest at the end of the hurricane season assuming the bond was not triggered, and then gradually increases as the next hurricane season approaches. The model also implies that the magnitude of the seasonality effect increases with the expected loss and the approaching maturity of the bond. The model is supported by an empirical analysis that indicates that up to 47% of market fluctuations in the yield spreads on single-peril hurricane bonds can be explained by seasonality. In addition, we provide a method to obtain market-implied distributions of arrival frequencies from secondary market spreads.
Subjects: 
alternative risk transfer
bond spreads
catastrophe arrival frequencies
seasonality
underwriting risk
Persistent Identifier of the first edition: 
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Article
Document Version: 
Published Version

Files in This Item:
File
Size





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.