The Swiss Re Mortality Bond 2003 was the maiden catastrophic
mortality bond to be issued in the insurance market. Catastrophic bonds are
designed with the aim to aid insurance companies circumvent the risk that
arises in the event of a major catastrophe which cannot be covered with
premiums. This bond captures the behaviour of a well-defined mortality index to
generate pay-offs for bondholders. Pricing of catastrophic mortality bonds is
an interesting problem and no closed form solution can be found in the existing
literature. In our approach, we express the pay-off of such a bond in terms of
the pay-off of an Asian put option in a manner similar to [1] and present an
efficient model-independent lower bound by making some very general
assumptions. We then run Monte Carlo simulations to estimate the bond price and
illustrate the quality of the bound for a variety of models.
Author
(s) Details
Raj Kumari Bahl
Department of Statistics, Ramjas College, University of Delhi, India.
Please see the book here:- https://doi.org/10.9734/bpi/mcscd/v6/2483
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