A simple robust model for Cat bond valuation

Robert Jarrow ()

Finance Research Letters, 2010, vol. 7, issue 2, 72-79

Abstract: This note provides a simple closed form solution for valuing Cat bonds. The formula is consistent with any arbitrage-free model for the evolution of the Libor term structure of interest rates. The crucial inputs to the valuation formula are the likelihood of the catastrophe event, per unit time, and the percentage loss rate realized if an event occurs. The pricing methodology is based on the reduced form models used to price credit derivatives.

Keywords: Cat; bond; Reinsurance; Reduced; form; model; Catastrophe; events (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (30)

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