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A Rational Approach to Pricing of Catastrophe Insurance

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  • Dong, Weimin
  • Shah, Haresh
  • Wong, Felix

Abstract

A methodology for rational pricing of catastrophe insurance is described. The methodology has two components: a solvency- and stability-based framework, and an engine to quantify the loss variability that drives solvency and stability. Generalization to account for contagious effects of catastrophes and multiple occurrence of peril is presented in detail. Copyright 1996 by Kluwer Academic Publishers

Suggested Citation

  • Dong, Weimin & Shah, Haresh & Wong, Felix, 1996. "A Rational Approach to Pricing of Catastrophe Insurance," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 201-218, May.
    • Handle: RePEc:kap:jrisku:v:12:y:1996:i:2-3:p:201-18
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    Cited by:

    1. Nan Zhang & Heng Xu, 2024. "Fairness of Ratemaking for Catastrophe Insurance: Lessons from Machine Learning," Information Systems Research, INFORMS, vol. 35(2), pages 469-488, June.
    2. Shujian Ma & Juncheng Jiang, 2018. "Discrete dynamical Pareto optimization model in the risk portfolio for natural disaster insurance in China," Natural Hazards: Journal of the International Society for the Prevention and Mitigation of Natural Hazards, Springer;International Society for the Prevention and Mitigation of Natural Hazards, vol. 90(1), pages 445-460, January.
    3. James F. Moore, 1999. "Tail Estimation and Catastrophe Security Pricing: Can We Tell What Target We Hit if We Are Shooting in the Dark?," Center for Financial Institutions Working Papers 99-14, Wharton School Center for Financial Institutions, University of Pennsylvania.
    4. Hossein Morshedlou & Mohammad Reza Meybodi, 2018. "Insurance for Improving User Satisfaction Level," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 60(6), pages 513-524, December.
    5. Ozlem Ozdemir & Andrea Morone, 2014. "An experimental investigation of insurance decisions in low probability and high loss risk situations," Journal of Economic Interaction and Coordination, Springer;Society for Economic Science with Heterogeneous Interacting Agents, vol. 9(1), pages 53-67, April.
    6. Torben Andersen, 2001. "Managing Economic Exposures of Natural Disasters: Exploring Alternative Financial Risk Management Opportunities and Instruments," IDB Publications (Working Papers) 8934, Inter-American Development Bank.
    7. Morone, Andrea & Ozdemir, Ozlem, 2012. "Black swan protection: an experimental investigation," MPRA Paper 38842, University Library of Munich, Germany.
    8. Akter, Sonia & Brouwer, Roy & Chowdhury, Saria & Aziz, Salina, 2008. "Determinants of Participation in a Catastrophe Insurance Programme: Empirical Evidence from a Developing Country," 2008 Conference (52nd), February 5-8, 2008, Canberra, Australia 5984, Australian Agricultural and Resource Economics Society.
    9. Andrea Morone & Ozlem Ozdemir, 2006. "Valuing Protection against Low Probability, High Loss Risks: Experimental Evidence," Papers on Strategic Interaction 2006-34, Max Planck Institute of Economics, Strategic Interaction Group.
    10. Froot, Kenneth A. & O'Connell, Paul G.J., 2008. "On the pricing of intermediated risks: Theory and application to catastrophe reinsurance," Journal of Banking & Finance, Elsevier, vol. 32(1), pages 69-85, January.

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