Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/258297 
Year of Publication: 
2021
Citation: 
[Journal:] Risks [ISSN:] 2227-9091 [Volume:] 9 [Issue:] 12 [Article No.:] 215 [Publisher:] MDPI [Place:] Basel [Year:] 2021 [Pages:] 1-19
Publisher: 
MDPI, Basel
Abstract: 
Nat Cat risks are not insurable by traditional insurance mainly because of producing highly correlated losses. The source of such correlation among buildings of a region subject to a natural hazard is discussed. A decomposition method is proposed to split Nat Cat risk into idiosyncratic (and hence insurable) risk and systematic risk (carrying the correlated part). It is explained that the systematic risk can be transferred to capital markets using a set of parametric CAT bonds. Premium calculation is presented for insuring the decomposed risk. Portfolio risk-return trade-off measures for investing on the parametric CAT bond are derived. Multi-regional and multi-hazard parametric CAT bonds are introduced to reduce the risk of the investment. The methodology is applied on a region with about 3000 residential buildings subject to flood hazards.
Subjects: 
Nat Cat risk
insurability
CAT bond
risk decomposition
parametric bond
correlated risk
systematic risk
catastrophe risk management
Persistent Identifier of the first edition: 
Creative Commons License: 
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Document Type: 
Article
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