Utility indifference pricing of insurance catastrophe derivatives

Eichler, Andreas and Leobacher, Gunther and Szölgyenyi, Michaela (2017) Utility indifference pricing of insurance catastrophe derivatives. European Actuarial Journal, 7 (2). pp. 515-534. ISSN 2190-9741

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We propose a model for an insurance loss index and the claims process of a single insurance company holding a fraction of the total number of contracts that captures both ordinary losses and losses due to catastrophes. In this model we price a catastrophe derivative by the method of utility indifference pricing. The associated stochastic optimization problem is treated by techniques for piecewise deterministic Markov processes. A numerical study illustrates our results.

Item Type: Article
Additional Information: Open access funding provided by Austrian Science Fund (FWF). A. Eichler is supported by the Austrian Science Fund (FWF): Project P21196. G. Leobacher is supported by the Austrian Science Fund (FWF): Project F5508-N26, which is part of the Special Research Program "Quasi-Monte Carlo Methods: Theory and Applications" and by the Austrian Science Fund (FWF): Project P21196. This paper was written while G. Leobacher was member of the Department of Financial Methematics and Applied Number Theory, Johannes Kepler University Linz, Altenbergerstraße 69, 4040 Linz, Austria. M. Szölgyenyi is supported by the Vienna Science and Technology Fund (WWTF): Project MA14-031.
Keywords: insurance mathematics / catastrophe derivatives / utility indifference pricing / modeling catastrophe losses / piecewise deterministic Markov process
Classification Codes: JEL 91G20; 91B70; 91B16; 93E20; 60J75
Divisions: Departments > Finance, Accounting and Statistics > Statistics and Mathematics
Version of the Document: Published
Variance from Published Version: None
Depositing User: Elena Simukovic
Date Deposited: 30 May 2017 14:22
Last Modified: 01 Aug 2020 19:04
Related URLs:
FIDES Link: https://bach.wu.ac.at/d/research/results/77862/
URI: https://epub.wu.ac.at/id/eprint/5566


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