CATASTROPHE INSURANCE DERIVATIVES PRICING USING A COX PROCESS WITH JUMP DIFFUSION CIR INTENSITY

Jiwook Jang (), Jong Jun Park () and Hyun Jin Jang ()
Additional contact information
Jiwook Jang: Department of Actuarial Studies and Business Analytics, Faculty of Business and Economics, Macquarie University, Sydney NSW 2109, Australia
Jong Jun Park: Department of Mathematical Sciences, Korea Advanced Institute of Science and Technology (KAIST), Daejeon 34141, Republic of Korea
Hyun Jin Jang: School of Business Administration, Ulsan National Institute of Science and Technology (UNIST), Ulsan 44919, Republic of Korea

International Journal of Theoretical and Applied Finance (IJTAF), 2018, vol. 21, issue 07, 1-20

Abstract: We propose an analytical pricing method for stop-loss reinsurance contracts and catastrophe insurance derivatives using a Cox process with jump diffusion Cox–Ingersoll–Ross (CIR) intensity. The expected payoff of these contracts is expressed by the Laplace transform of the integration of the jump diffusion CIR process and the first moment of the aggregate loss. To confirm that the proposed analytical formula provides stable and accurate insurance derivative prices, we simulate them using a full Monte Carlo method compared to those obtained from its theoretical expectation. It shows that it is much faster way to obtain them than the full Monte Carlo method. We also conduct sensitivity analysis by changing the relevant parameters in the loss intensity providing their figures.

Keywords: Cox process; integrated jump diffusion CIR process; Laplace transform; characteristic function; insurance derivatives (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024918500413
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:21:y:2018:i:07:n:s0219024918500413

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219024918500413

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().