Innovative Derivatives to Drive Investment in Earthquake Protection Technologies

Yuji Takahashi ()
Additional contact information
Yuji Takahashi: MetLife Insurance K.K

A chapter in Risk and Reliability Analysis: Theory and Applications, 2017, pp 537-559 from Springer

Abstract: Abstract We propose derivatives that compensate for the preparation cost to a building owner unless a specified earthquake occurs. By purchasing the derivatives, the building owner should pay for the earthquake protection only when the specified earthquake occurs. Otherwise the additional preparation cost will be covered by the derivative counterparty. In exchange for the coverage, the building owner is required to deposit a principal, which is lost when the earthquake happens. The proposed derivatives are expected to result in the efficient promotion of earthquake protection technologies in seismic regions. This chapter presents a scheme to swap the cash flow with a regular catastrophe bond. The price of the proposed derivatives is the ratio of the notional amount to the compensation given the earthquake does not take place. The pricing is formulated based on credit default swap (CDS) pricing. We present a numerical example using an actual cat bond, where up-to-date seismological models are introduced into pricing.

Keywords: Earthquake protection; Derivatives; Cat bond; CDS pricing; Seismological model (search for similar items in EconPapers)
Date: 2017
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

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:spr:ssrchp:978-3-319-52425-2_23

Ordering information: This item can be ordered from
http://www.springer.com/9783319524252

DOI: 10.1007/978-3-319-52425-2_23

Access Statistics for this chapter

More chapters in Springer Series in Reliability Engineering from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().