Report Summarizes Actuarial Science Study Findings from Pennsylvania State University (Cat Bond Pricing Under a Product Probability Measure With Pot Risk Characterization)

2019 MAY 31 (NewsRx) -- By a News Reporter-Staff News Editor at Insurance Daily News -- Investigators publish new report on Science - Actuarial Science. According to news reporting out of University Park, United States, by NewsRx editors, research stated, “Frequent large losses from recent catastrophes have caused great concerns among insurers/reinsurers, who then turn to seek mitigations of such catastrophe risks by issuing catastrophe (CAT) bonds and thereby transferring the risks to the bond market. Whereas, the pricing of CAT bonds remains a challenging task, mainly due to the facts that the CAT bond market is incomplete and that the pricing usually requires knowledge about the tail of the risks.”

Financial supporters for this research include Society of Actuaries (SOA) research grant entitled “Modeling and Analyzing Extreme Risks in Insurance”, Natural Science Foundation of the United States.

Our news journalists obtained a quote from the research from Pennsylvania State University, “In this paper, we propose a general pricing framework based on a product pricing measure, which combines a distorted probability measure that prices the catastrophe risks underlying the CAT bond with a risk-neutral probability measure that prices interest rate risk. We also demonstrate the use of the peaks over threshold (POT) method to uncover the tail risk.”

According to the news editors, the research concluded: “Finally, we conduct case studies using Mexico and California earthquake data to demonstrate the applicability of our pricing framework.”

For more information on this research see: Cat Bond Pricing Under a Product Probability Measure With Pot Risk Characterization. Astin Bulletin, 2019;49(2):457-490. Astin Bulletin can be contacted at: Cambridge Univ Press, Edinburgh Bldg, Shaftesbury Rd, CB2 8RU Cambridge, England.

Our news journalists report that additional information may be obtained by contacting Z.Y. Yuan, Pennsylvania State University, Smeal College of Business, Dept Risk Management, University Park, PA 16802, United States.

The direct object identifier (DOI) for that additional information is: https://doi.org/10.1017/asb.2019.11. 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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