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Hybrid cat bonds

Barrieu, Pauline and Louberge, Henri (2009) Hybrid cat bonds. Journal of Risk and Insurance, 76 (3). pp. 547-578. ISSN 0022-4367

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Identification Number: 10.1111/j.1539-6975.2009.01312.x


Natural catastrophes attract regularly the attention of media and have become a source of public concern. From a financial viewpoint, natural catastrophes represent idiosyncratic risks, diversifiable at the world level. But for reasons analyzed in this paper reinsurance markets are unable to cope with this risk completely. Insurance-linked securities, such as cat bonds, have been issued to complete the international risk transfer process, but their development is disappointing so far. This paper argues that downside risk aversion and ambiguity aversion explain the limited success of cat bonds. Hybrid cat bonds, combining the transfer of cat risk with protection against a stock market crash, are proposed to complete the market. Using the concept of market modified risk measure, the paper shows that replacing simple cat bonds with hybrid cat bonds would lead to an increase in market volume.

Item Type: Article
Official URL:
Additional Information: © 2009 The American Risk and Insurance Association
Divisions: Statistics
Subjects: H Social Sciences > HD Industries. Land use. Labor > HD61 Risk Management
Date Deposited: 26 Nov 2009 16:57
Last Modified: 17 Jun 2024 21:54

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