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Victor Vaugirard
''A canonical first passage time model to pricing nature-linked bonds''
( 2004, Vol. 7 No.2 )
This paper shows that pricing catastrophe bonds boils down to computing first-passage time distributions of jump-diffusion processes. It derives a generic valuation expression by assuming that the jump risk is not systematic and then performs simulations, which can stress the sensitivity of insurance bond values to changes in underlying parameters.
Keywords: Catastrophe risk
C6 - Mathematical Methods and Programming: General
Manuscript Received : Jul 04 2004 Manuscript Accepted : Jul 05 2004

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