Muermann, Alexander (2002) Pricing catastrophe insurance derivatives. Discussion paper, 400. Financial Markets Group, London School of Economics and Political Science, London, UK.
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We investigate the valuation of catastrophe insurance derivatives that are traded at the Chicago Board of Trade. By modeling the underlying index as a compound Poisson process we give a representation of no-arbitrage price processes using Fourier analysis. This characterization enables us to derive the inverse Fourier transform of prices in closed form for every fixed equivalent martingale measure. It is shown that the set of equivalent measures, the set of no-arbitrage prices, and the market prices of frequency and jump size risk are in one-to-one connection. Following a representative agent approach we determine the unique equivalent martingale under which prices in the insurance market are calculated.
|Item Type:||Monograph (Discussion Paper)|
|Additional Information:||© 2002 The Author|
|Library of Congress subject classification:||H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
|Sets:||Research centres and groups > Financial Markets Group (FMG)
Collections > Economists Online
Collections > LSE Financial Markets Group (FMG) Working Papers
|Date Deposited:||19 Aug 2009 10:55|
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