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Developing Countries Spreading Covariant Risk Into International Risk Markets: Subsidised Catastrophe Bonds Or Reinsurance, Or Disaster Assistance?

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  • Tse-Ling Teh
  • Alan Martina

Abstract

Poor developing countries, faced with high levels of covariant risk ideally should spread this risk into the international risk market. How might this best be done - given that through diversification this market will tend to gain from absorbing this risk? Conglomerates of intermediate financial institutions may need to be formed in developing countries to acquire risk-transfer financial instruments. The preferred instrument is subsidised catastrophe bonds and not reinsurance or lump-sum foreign disaster assistance. Numerical analysis is employed as part of the demonstration of this point. Disaster foreign aid also should take the form of subsidising the issuing of catastrophe bonds by developing countries.

Suggested Citation

  • Tse-Ling Teh & Alan Martina, 2008. "Developing Countries Spreading Covariant Risk Into International Risk Markets: Subsidised Catastrophe Bonds Or Reinsurance, Or Disaster Assistance?," ANU Working Papers in Economics and Econometrics 2008-492, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2008-492
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    File URL: https://www.cbe.anu.edu.au/researchpapers/econ/wp492.pdf
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • D92 - Microeconomics - - Micro-Based Behavioral Economics - - - Intertemporal Firm Choice, Investment, Capacity, and Financing
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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