Valuing Multirisk Catastrophe Reinsurance Based on the Cox–Ingersoll–Ross (CIR) Model
Catastrophe risks lead to severe problems of insurance and reinsurance industry. In order to reduce the underwriting risk, the insurer would seek protection by transferring part of its risk exposure to the reinsurer. A framework for valuing multirisk catastrophe reinsurance under stochastic interest...
Saved in:
| Main Author: | |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Wiley
2021-01-01
|
| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2021/8818486 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| _version_ | 1832559788343427072 |
|---|---|
| author | Wen Chao |
| author_facet | Wen Chao |
| author_sort | Wen Chao |
| collection | DOAJ |
| description | Catastrophe risks lead to severe problems of insurance and reinsurance industry. In order to reduce the underwriting risk, the insurer would seek protection by transferring part of its risk exposure to the reinsurer. A framework for valuing multirisk catastrophe reinsurance under stochastic interest rates driven by the CIR model shall be discussed. To evaluate the distribution and the dependence of catastrophe variables, the Peaks over Threshold model and Copula function are used to measure them, respectively. Furthermore, the parameters of the valuing model are estimated and calibrated by using the Global Flood Date provided by Dartmouth College from 2000 to 2016. Finally, the value of catastrophe reinsurance is derived and a sensitivity analysis of how stochastic interest rates and catastrophe dependence affect the values is performed via Monte Carlo simulations. The results obtained show that the catastrophe reinsurance value is the inverse relation between initial value of interest rate and average interest rate in the long run. Additionally, a high level of dependence between catastrophe variables increases the catastrophe reinsurance value. The findings of this paper may be interesting to (re)insurance companies and other financial institutions that want to transfer catastrophic risks. |
| format | Article |
| id | doaj-art-ba2bb3d46eaf442593566af108e843f4 |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2021-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-ba2bb3d46eaf442593566af108e843f42025-02-03T01:29:20ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2021-01-01202110.1155/2021/88184868818486Valuing Multirisk Catastrophe Reinsurance Based on the Cox–Ingersoll–Ross (CIR) ModelWen Chao0School of Management, Fujian University of Technology, Fuzhou 350108, ChinaCatastrophe risks lead to severe problems of insurance and reinsurance industry. In order to reduce the underwriting risk, the insurer would seek protection by transferring part of its risk exposure to the reinsurer. A framework for valuing multirisk catastrophe reinsurance under stochastic interest rates driven by the CIR model shall be discussed. To evaluate the distribution and the dependence of catastrophe variables, the Peaks over Threshold model and Copula function are used to measure them, respectively. Furthermore, the parameters of the valuing model are estimated and calibrated by using the Global Flood Date provided by Dartmouth College from 2000 to 2016. Finally, the value of catastrophe reinsurance is derived and a sensitivity analysis of how stochastic interest rates and catastrophe dependence affect the values is performed via Monte Carlo simulations. The results obtained show that the catastrophe reinsurance value is the inverse relation between initial value of interest rate and average interest rate in the long run. Additionally, a high level of dependence between catastrophe variables increases the catastrophe reinsurance value. The findings of this paper may be interesting to (re)insurance companies and other financial institutions that want to transfer catastrophic risks.http://dx.doi.org/10.1155/2021/8818486 |
| spellingShingle | Wen Chao Valuing Multirisk Catastrophe Reinsurance Based on the Cox–Ingersoll–Ross (CIR) Model Discrete Dynamics in Nature and Society |
| title | Valuing Multirisk Catastrophe Reinsurance Based on the Cox–Ingersoll–Ross (CIR) Model |
| title_full | Valuing Multirisk Catastrophe Reinsurance Based on the Cox–Ingersoll–Ross (CIR) Model |
| title_fullStr | Valuing Multirisk Catastrophe Reinsurance Based on the Cox–Ingersoll–Ross (CIR) Model |
| title_full_unstemmed | Valuing Multirisk Catastrophe Reinsurance Based on the Cox–Ingersoll–Ross (CIR) Model |
| title_short | Valuing Multirisk Catastrophe Reinsurance Based on the Cox–Ingersoll–Ross (CIR) Model |
| title_sort | valuing multirisk catastrophe reinsurance based on the cox ingersoll ross cir model |
| url | http://dx.doi.org/10.1155/2021/8818486 |
| work_keys_str_mv | AT wenchao valuingmultiriskcatastrophereinsurancebasedonthecoxingersollrosscirmodel |