scholarly journals Decomposition of Natural Catastrophe Risks: Insurability Using Parametric CAT Bonds

Risks ◽  
2021 ◽  
Vol 9 (12) ◽  
pp. 215
Author(s):  
Morteza Tavanaie Marvi ◽  
Daniël Linders
Keyword(s):  
Decomposition Method ◽  
Natural Hazard ◽  
Residential Buildings ◽  
Systematic Risk ◽  
Flood Hazards ◽  
Portfolio Risk ◽  
Risk Return ◽  
Cat Bonds ◽  
Premium Calculation ◽  
Highly Correlated

Nat Cat risks are not insurable by traditional insurance mainly because of producing highly correlated losses. The source of such correlation among buildings of a region subject to a natural hazard is discussed. A decomposition method is proposed to split Nat Cat risk into idiosyncratic (and hence insurable) risk and systematic risk (carrying the correlated part). It is explained that the systematic risk can be transferred to capital markets using a set of parametric CAT bonds. Premium calculation is presented for insuring the decomposed risk. Portfolio risk-return trade-off measures for investing on the parametric CAT bond are derived. Multi-regional and multi-hazard parametric CAT bonds are introduced to reduce the risk of the investment. The methodology is applied on a region with about 3000 residential buildings subject to flood hazards.

scholarly journals A Pricing Model in a Sensitive Insurance Market

1982 ◽  
Vol 13 (2) ◽  
pp. 135-149 ◽  
Author(s):  
Franco Moriconi
Keyword(s):  
Policy Instrument ◽  
Performance Criterion ◽  
Insurance Company ◽  
Safety Index ◽  
Expected Return ◽  
Pricing Policy ◽  
Risk Return ◽  
Insurance Portfolio ◽  
Premium Calculation ◽  
Selection Of

A great attention has been devoted, in the actuarial literature, to premium calculation principles and it has been often emphasized that these principles should not only be defined in strictly actuarial terms, but should also take into account the market conditions (Bühlmann (1980), de Jong (1981)).In this paper we propose a decision model to define the pricing policy of an insurance company that operates in a market which is stratified in k risk classes .It is assumed that any class constitutes a homogeneous collective containing independent risks Sj(t) of compound Poisson type, with the same intensity λj. The number nj of risks of that are held in the insurance portfolio depends on the premium charged to the class by means of a demand function which captures the concept of risk aversion and represents the fraction of individuals of , that insure themselves at the annual premium xj.With these assumptions, the return Y on the portfolio is a function of the vector x = (x1, x2, …, xk) of the prices charged to the single classes (and of the time) and x is therefore the decision policy instrument adopted by the company for the selection of the portfolio, whose optimal composition is evaluated according to a risk-return type performance criterion.As a measure of risk we adopt the ultimate ruin probability q(w) that, in the assumptions of our model, can be related to a safety index τ, by means of Lundberg-de Finetti inequality. Even though it has been widely debated in the actuarial field, the use of q(w) offers undeniable operational advantages. In our case the safety index τ can be expressed as a function of x and therefore, in the phase of selecting an efficient portfolio, it becomes the function to be maximized, for a given level M of the expected return.

scholarly journals Accuracy of Premium Calculation Models for CAT Bonds-An Empirical Analysis

2012 ◽  
Vol 80 (2) ◽  
pp. 401-421 ◽  
Author(s):  
Marcello Galeotti ◽  
Marc Gürtler ◽  
Christine Winkelvos
Keyword(s):  
Empirical Analysis ◽  
Cat Bonds ◽  
Premium Calculation ◽  
Calculation Models

A Lifecycle Cost Analysis of Residential Buildings Including Natural Hazard Risk

2017 ◽  
Vol 143 (7) ◽  
pp. 04017017 ◽  
Author(s):  
Arash Noshadravan ◽  
Travis R. Miller ◽  
Jeremy G. Gregory
Keyword(s):  
Cost Analysis ◽  
Natural Hazard ◽  
Residential Buildings ◽  
Hazard Risk

The diverging role of the systematic risk factors: evidence from real estate stock markets

2015 ◽  
Vol 33 (1) ◽  
pp. 81-106 ◽  
Author(s):  
Stephan Lang ◽  
Alexander Scholz
Keyword(s):  
Risk Factors ◽  
Time Series ◽  
Asset Pricing ◽  
Real Estate ◽  
Systematic Risk ◽  
Content Type ◽  
Risk Return ◽  
Systematic Risk Factors ◽  
Relationship Of

Purpose – The risk-return relationship of real estate equities is of particular interest for investors, practitioners and researchers. The purpose of this paper is to examine, in an asset pricing framework, whether the systematic risk factors play a significantly different role in explaining the returns of listed real estate companies, compared to general equities. Design/methodology/approach – Running the difference test of the Fama-French three-factor and the liquidity-augmented asset pricing model, the authors analyze the effect of the systematic risk factors related to market, size, BE/ME and liquidity in a time-series setting over the period July 1992 to June 2012. By applying the propensity score matching (PSM) algorithm, the authors bypass the “curse of dimensionality” of traditional matching techniques and identify a comparable control sample of general equities, in terms of the relevant firm characteristics of size, BE/ME and liquidity. Findings – The empirical results indicate that European real estate equity returns load significantly differently on the size, value and liquidity factor, while the influence of the market factor seems to be equivalent. In addition, the authors find an economically and statistically significant underperformance of European real estate equities, after accounting for the diverging role of systematic risk factors. Running the conditional time-series regression, the authors further reveal that these findings are predominately caused by the divergent risk-return behavior of real estate equities in economic downturns. Practical implications – Due to the diverging role of the systematic risk factors in pricing real estate equities, the authors provide evidence of potential diversification benefits for investors and portfolio managers. Originality/value – This is the first real estate asset pricing study to dissect the unique risk-return relationship of real estate equities by employing propensity score matching.

Arable Land as Commons

2006 ◽  
Vol 30 (3) ◽  
pp. 431-461
Author(s):  
Philip C. Brown
Keyword(s):  
Geographic Information Systems ◽  
Great Risk ◽  
Natural Hazard ◽  
Arable Land ◽  
Flood Hazards ◽  
Land Redistribution ◽  
Hazard Risk ◽  
Village Studies ◽  
The Impact

The origins and role of corporate landholding and land redistribution practices over arable land in seventeenth- to nineteenth-century Japan have posed a quandary for scholars. The most common forms are widely seen as means to spread the impact of flooding among villagers in districts that are considered to be at great risk from flood hazards. Such conclusions are often based on individual village studies. In contrast, this study takes a regional approach and tests the validity of this relationship using geographic information systems technology experimentally. This experiment reveals a variety of anomalies that, taken together, suggest that any link between natural hazard risk and the presence or absence of redistribution practices is more subtle than typical explanations assert.

scholarly journals THE IMPACT OF DEGREE OF FINANCIAL LEVERAGE AND DEGREE OF OPERATING LEVERAGE ON THE SYSTEMATIC RISK OF COMMON STOCK

2020 ◽  
Vol 4 (1) ◽  
pp. 24-32
Author(s):  
Khadija Younas ◽  
Muhammad Sarmad
Keyword(s):  
Systematic Risk ◽  
Regression Technique ◽  
Securities Market ◽  
Financial Leverage ◽  
Wealth Maximization ◽  
Independent Variables ◽  
Risk Return ◽  
Operating Leverage ◽  
The Impact

The aim of this study is that the to evaluate the effect of financial leverage and operating leverage on the systematic risk of stock. In trendy competitive business era, the power to extend come of the firm is usually depends on economical use of leverage within the capital structure. Leverage is outlined as an extended term debt funding that improves the permanent financial performance yet because the success of the organization. It conjointly explained because the use borrowed funds to ascertain investment and come thereon investment however it’s a lot of risky if they can’t be ready to generate higher rate of come in compare with value of capital. For this reason, the determination of the proportion of debt and equity is one in every of the foremost essential choices that the organization faces, and any variability in leverage will influence a company’s monetary capability, risk, return, investment, strategic call and therefore the wealth maximization of organization. During this study, financial leverage and operating leverage as independent variables and systematic risk because the variable is considered. This study used a quantitative analysis style. The population of the study was created from the 8 cement industries of Pakistan. The study used secondary knowledge that was obtained from the annual audited monetary statements that had audited and revealed by securities market of Pakistan for an amount of five years between 2014 and 2019. This study used a correlation analysis and a multiple rectilinear regression technique in analyzing the collected knowledge. The study found that financial leverage and operating leverage had a big positive relationship with systematic risk of stock. This study covers that financial leverage and operating leverage have an immediate result on the systematic risk of stock in a very companies’ come. The study counseled that management of corporations listed at the securities market to draw in smart management therefore to beat the danger of stock. Whereas important at ≤ 0/05 H0 hypothesis, is rejected. Otherwise, there’s no different adequate reason for rejecting H0 hypothesis. For testing the hypothesis of this study, rectilinear regression technique has been used. In step with the results obtained, H0 is rejected because of important = zero.00< 0.05. This analysis is 100% because of all knowledge is collected from the correct places.

The investment attributes of Mexico REITs as a listed property investment vehicle

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Jufri Marzuki ◽  
Graeme Newell
Keyword(s):  
Latin American ◽  
Emerging Economies ◽  
Portfolio Optimisation ◽  
Portfolio Risk ◽  
Property Market ◽  
Content Type ◽  
Risk Return ◽  
Latin American Region ◽  
The World ◽  
Asset Portfolio

PurposeMexico REITs are a significant and important REIT market, both in a regional and in emerging property market context. As one of the few emerging economies in the world with an active REIT market, Mexico REITs are specifically designed to provide an effective pathway to participate in the investment opportunities offered by the Mexico commercial property market for both domestic and international investors. Importantly, Mexico REITs provide additional property investment benefits such as a high degree of transparency, governance and liquidity. The main focus of this research is to highlight the significance of Mexico REITs and assess their performance dynamics, as well as the added-value benefits of Mexico REITs in mixed-asset investment portfolios.Design/methodology/approachUsing monthly total returns, the risk-adjusted performance and portfolio diversification potential of Mexico REITs over April 2011–December 2019 were assessed. A constrained mean-variance portfolio optimisation framework was used to develop a three-asset portfolio scenario using the historical returns, risk and correlation of Mexico REITs and the other two major financial assets.FindingsDespite being more volatile than the mainstream asset classes, Mexico REITs delivered the strongest risk-adjusted performance versus stocks and bonds over April 2011–December 2019, which was made possible by the high premium of their total return performance. Notably, Mexico REITs offered excellent diversification potential with bonds, whilst demonstrating a marginal positive correlation with the stock market. These investment attributes of Mexico REITs have brought immediate benefits towards their ability to add value to the Mexico mixed-asset portfolio fabric across a wide portfolio risk–return spectrum.Practical implicationsWhilst their initial establishment in 2004 was considered unsuccessful, the ongoing regulatory improvements have been pivotal in providing a supportive investment environment to nurture the organic growth of Mexico REITs. This now sees the Mexico REIT market as an exemplar of success for REIT establishments amongst its peers in the Latin American region, as well as for emerging economies worldwide. Mexico REITs are now an important REIT market, as the second largest emerging REIT market in the world. The empirical investigation of this research has established the investment attributes of Mexico REITs as a listed property investment vehicle. The strong risk-adjusted performance of Mexico REITs compared to stocks and bonds sees Mexico REITs contributing to the mixed-asset portfolio across the portfolio risk–return spectrum. This is particularly important as it provides insights into the broader strategic implications of Mexico REITs as an effective, transparent and tax-efficient conduit for high-quality Latin American property exposure in a liquid format.Originality/valueThis paper is the first published empirical research that elucidates the investment attributes of Mexico REITs, highlighting their significance, risk-adjusted and portfolio performance enhancement role as an emerging REIT market. The main outcome of this research enables empirically validated, more informed and practical property investment decision-making regarding the strategic role of Mexico REITs in an investment portfolio.

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