DEVELOPING COUNTRIES SPREADING COVARIANT RISK INTO INTERNATIONAL RISK MARKETS: SUBSIDISED CATASTROPHE BONDS OR REINSURANCE, OR DISASTER ASSISTANCE?

Tse-Ling Teh and Alan Martina ()

ANUCBE School of Economics Working Papers from Australian National University, College of Business and Economics, School of Economics

Abstract: Poor developing countries, faced with high levels of covariant risk ideally should spread this risk into the international risk market. How might this best be done - given that through diversification this market will tend to gain from absorbing this risk? Conglomerates of intermediate financial institutions may need to be formed in developing countries to acquire risk-transfer financial instruments. The preferred instrument is subsidised catastrophe bonds and not reinsurance or lump-sum foreign disaster assistance. Numerical analysis is employed as part of the demonstration of this point. Disaster foreign aid also should take the form of subsidising the issuing of catastrophe bonds by developing countries.

JEL-codes: D92 G11 G15 G22 O16 O19 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev
Date: 2008-04
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