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The Role of Financial Instruments in Integrated Catastrophic Flood Management

Author

Listed:
  • Tatiana Ermolieva

    (International Institute for Applied Systems Analysis, Austria)

  • Yuri Ermoliev

    (International Institute for Applied Systems Analysis, Austria)

  • Guenther Fischer

    (International Institute for Applied Systems Analysis, Austria)

  • Istvan Galambos

    (VITUKI Consult, Hungary)

Abstract

The main goal of this paper is to develop a flood management model that takes into account the specifics of catastrophic risk management: highly mutually dependent losses, the lack of information, the need for long-term perspectives and explicit analyses of spatial and temporal heterogeneities of various agents such as individuals, governments, and insurers. We use modified data from a pilot region of the Upper Tisza river, Hungary, to illustrate the evaluation of a public multipillar flood loss-spreading program involving partial compensation to flood victims by the central government, the pooling of risks through a mandatory public catastrophe insurance on the basis of location-specific exposures, and the demand for a contingent ex-ante credit to reinsure the insurance’s liabilities. GIS-based catastrophe models and stochastic optimization methods are used to guide policy analysis with respect to location-specific risk exposures.

Suggested Citation

  • Tatiana Ermolieva & Yuri Ermoliev & Guenther Fischer & Istvan Galambos, 2003. "The Role of Financial Instruments in Integrated Catastrophic Flood Management," Multinational Finance Journal, Multinational Finance Journal, vol. 7(3-4), pages 207-230, September.
    • Handle: RePEc:mfj:journl:v:7:y:2003:i:3-4:p:207-230
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    References listed on IDEAS

    as
    1. T.Y. Ermolieva, 1997. "The Design of Optimal Insurance Decisions in the Presence of Catastrophic Risks," Working Papers ir97068, International Institute for Applied Systems Analysis.
    2. Mayers, David & Smith, Clifford W, Jr, 1983. "The Interdependence of Individual Portfolio Decisions and the Demand for Insurance," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 304-311, April.
    3. Arrow, Kenneth J, 1996. "The Theory of Risk-Bearing: Small and Great Risks," Journal of Risk and Uncertainty, Springer, vol. 12(2-3), pages 103-111, May.
    4. Norbert J. Jobst & Stavros A. Zenios, 2001. "The Tail that Wags the Dog: Integrating Credit Risk in Asset Portfolios," Journal of Risk Finance, Emerald Group Publishing Limited, vol. 3(1), pages 31-43, April.
    5. A. Amendola & Y. Ermoliev & T. Ermolieva & V. Gitis & G. Koff & J. Linnerooth-Bayer, 2000. "A Systems Approach to Modeling Catastrophic Risk and Insurability," 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. 21(2), pages 381-393, May.
    6. Y.M. Ermoliev & T.Y. Ermolieva & G.J. MacDonald & V.I. Norkin, 2000. "Stochastic Optimization of Insurance Portfolios for Managing Exposure to Catastrophic Risks," Annals of Operations Research, Springer, vol. 99(1), pages 207-225, December.
    7. Philippe Artzner & Freddy Delbaen & Jean‐Marc Eber & David Heath, 1999. "Coherent Measures of Risk," Mathematical Finance, Wiley Blackwell, vol. 9(3), pages 203-228, July.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Perez-Maqueo, O. & Intralawan, A. & Martinez, M.L., 2007. "Coastal disasters from the perspective of ecological economics," Ecological Economics, Elsevier, vol. 63(2-3), pages 273-284, August.
    2. T. Ermolieva & T. Filatova & Y. Ermoliev & M. Obersteiner & K. M. de Bruijn & A. Jeuken, 2017. "Flood Catastrophe Model for Designing Optimal Flood Insurance Program: Estimating Location‐Specific Premiums in the Netherlands," Risk Analysis, John Wiley & Sons, vol. 37(1), pages 82-98, January.
    3. Tatiana Ermolieva & Petr Havlik & Yuri Ermoliev & Nikolay Khabarov & Michael Obersteiner, 2021. "Robust Management of Systemic Risks and Food-Water-Energy-Environmental Security: Two-Stage Strategic-Adaptive GLOBIOM Model," Sustainability, MDPI, vol. 13(2), pages 1-16, January.

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    More about this item

    Keywords

    flood risk; catastrophe modeling; insurance; stochastic optimization; insolvency; contingent credit; CvaR;
    All these keywords.

    JEL classification:

    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • C61 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Optimization Techniques; Programming Models; Dynamic Analysis

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