New Insurance Economics Findings Has Been Reported by Investigators at London School of Economics and Political Science (A Random Forest Based Approach for Predicting Spreads In the Primary Catastrophe Bond Market): Economics – Insurance Economics

2022 JAN 04 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Investigators discuss new findings in Economics - Insurance Economics. According to news reporting originating from London, United Kingdom, by NewsRx correspondents, research stated, “We introduce a random forest approach to enable spreads’ prediction in the primary catastrophe bond market. In a purely predictive framework, we assess the importance of catastrophe spread predictors using permutation and minimal depth methods.”

Our news editors obtained a quote from the research from the London School of Economics and Political Science, “The whole population of non-life catastrophe bonds issued from December 2009 to May 2018 is used. We find that random forest has at least as good prediction performance as our benchmark-linear regression in the temporal context, and better prediction performance in the non-temporal one. Random forest also performs better than the benchmark when multiple predictors are excluded in accordance with the importance rankings or at random, which indicates that random forest extracts information from existing predictors more effectively and captures interactions better without the need to specify them. The results of random forest, in terms of prediction accuracy and the minimal depth importance are stable. There is only a small divergence between the drivers of catastrophe bond spread in the predictive versus explanatory framework.”

According to the news editors, the research concluded: “We believe that the usage of random forest can speed up investment decisions in the catastrophe bond industry both for would-be issuers and investors.”

This research has been peer-reviewed.

For more information on this research see: A Random Forest Based Approach for Predicting Spreads In the Primary Catastrophe Bond Market. Insurance: Mathematics and Economics, 2021;101:140-162. Insurance: Mathematics and Economics can be contacted at: Elsevier, Radarweg 29, 1043 Nx Amsterdam, Netherlands. (Elsevier - www.elsevier.com; Insurance: Mathematics and Economics - http://www.journals.elsevier.com/insurance-mathematics-and-economics/)

The news editors report that additional information may be obtained by contacting Despoina Makariou, London School of Economics and Political Science, Dept. of Statistics, London, United Kingdom. Additional authors for this research include Pauline Barrieu and Yining Chen.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1016/j.insmatheco.2021.07.003. This DOI is a link to an online electronic document that is either free or for purchase, and can be your direct source for a journal article and its citation.

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