Catastrophe Bonds: A Mitigation Opportunity in Turmoil Period

Massimo Mariani (), Alessandra Caragnano (), Francesco D’Ercole (), Raffaele Didonato () and Domenico Frascati ()
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Massimo Mariani: LUM Giuseppe Degennaro University
Alessandra Caragnano: SDA Bocconi School of Management
Francesco D’Ercole: LUM Giuseppe Degennaro University
Raffaele Didonato: LUM Giuseppe Degennaro University
Domenico Frascati: LUM Giuseppe Degennaro University

Chapter Chapter 8 in Contemporary Issues in Sustainable Finance, 2023, pp 187-228 from Palgrave Macmillan

Abstract: Abstract The work aims at examining the beneficial effect of minimal, if any, correlation of an alternative asset class, as Catastrophe bonds with traditional assets, specifically bonds, equity, real estate and commodity. Adopting a multi-level approach based on linear correlation and regression, diversification effect of Catastrophe bonds has been tested through spanning tests and portfolio optimizations resulting in the classification of the instruments as market-uncorrelated diversifier. Assuming the robustness of the results during the pandemic crisis, as a possible breakthrough in the market, the work shows the higher resilience of the Catastrophe bonds justifying its inclusion in diversifying portfolios during the turmoil period.

Keywords: Cat bonds; Correlation; Risk mitigation; Portfolio diversification; Covid-19 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:pal:psifcp:978-3-031-22539-0_8

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DOI: 10.1007/978-3-031-22539-0_8

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