Stable weak approximation at work in index-linked catastrophe bond pricing

Artikel

We consider the subject of approximating tail probabilities in the general compound renewal process framework, where severity data are assumed to follow a heavy-tailed law (in that only the first moment is assumed to exist). By using the weak convergence of compound renewal processes to a-stable Lévy motion, we derive such weak approximations. Their applicability is then highlighted in the context of an existing, classical, index-linked catastrophe bond pricing model, and in doing so, we specialize these approximations to the case of a compound time-inhomogeneous Poisson process. We emphasize a unique feature of our approximation, in that it only demands finiteness of the first moment of the aggregate loss processes. Finally, a numerical illustration is presented. The behavior of our approximations is compared to both Monte Carlo simulations and first-order single risk loss process approximations and compares favorably.

Objekt anzeigen

• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Journal: Risks ; ISSN: 2227-9091 ; Volume: 5 ; Year: 2017 ; Issue: 4 ; Pages: 1-19 ; Basel: MDPI

Klassifikation und Themen

• Klassifikation: Wirtschaft
• Thema: index-linked catastrophe bonds ; compound renewal process ; compound Poisson process ; heavy-tailed claims ; table Lévy motion ; weak convergence

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Burnecki, Krzysztof ; Giuricich, Mario Nicoló
• Ereignis: Veröffentlichung
• (wer): MDPI
• (wo): Basel
• (wann): 2017

Weitere Informationen

• DOI: doi:10.3390/risks5040064
• Handle: http://hdl.handle.net/10419/195792