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Catastrophe options with double compound Poisson processes

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  • Yu, Jun

Abstract

We study the following catastrophe option pricing model with double jump processes: (i) Stock process of an insurance company which sells catastrophe option are described through an exponential jump-diffusion process. (ii) All jump terms are modeled by two compound Poisson processes. One is correlated to the catastrophe loss process, and models the jumps of a stock due to catastrophe events. Another one models the jumps of the stock process caused by other financial market risks. For the model, we obtain explicit analytical formulas for the price of the put option, and then use several numerical examples based on Monte Carlo simulation to show its reasonability.

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  • Yu, Jun, 2015. "Catastrophe options with double compound Poisson processes," Economic Modelling, Elsevier, vol. 50(C), pages 291-297.
    • Handle: RePEc:eee:ecmode:v:50:y:2015:i:c:p:291-297
    DOI: 10.1016/j.econmod.2015.07.006
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    References listed on IDEAS

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    Cited by:

    1. Zaevski, Tsvetelin S. & Kounchev, Ognyan & Savov, Mladen, 2019. "Two frameworks for pricing defaultable derivatives," Chaos, Solitons & Fractals, Elsevier, vol. 123(C), pages 309-319.
    2. Bi, Hongwei & Wang, Guanying & Wang, Xingchun, 2019. "Valuation of catastrophe equity put options with correlated default risk and jump risk," Finance Research Letters, Elsevier, vol. 29(C), pages 323-329.
    3. Koo, Eunho & Kim, Geonwoo, 2017. "Explicit formula for the valuation of catastrophe put option with exponential jump and default risk," Chaos, Solitons & Fractals, Elsevier, vol. 101(C), pages 1-7.
    4. Wang, Xingchun, 2016. "Catastrophe equity put options with target variance," Insurance: Mathematics and Economics, Elsevier, vol. 71(C), pages 79-86.
    5. Wang, Xingchun, 2020. "Catastrophe equity put options with floating strike prices," The North American Journal of Economics and Finance, Elsevier, vol. 54(C).
    6. Wang, Xingchun, 2019. "Valuation of new-designed contracts for catastrophe risk management," The North American Journal of Economics and Finance, Elsevier, vol. 50(C).

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