An analysis of pricing and basis risk for industry loss warranties |
| |
Authors: | Nadine Gatzert Hato Schmeiser Denis Toplek |
| |
Institution: | 1.Lehrstuhl für Versicherungswirtschaft,Universit?t Erlangen-Nürnberg,Nürnberg,Germany;2.Lehrstuhl für Risikomanagement und Versicherungswirtschaft,Universit?t St. Gallen,St. Gallen,Switzerland;3.Munich,Germany |
| |
Abstract: | In recent years, industry loss warranties (ILWs) have become increasingly popular in the reinsurance market. The defining
feature of ILW contracts is their dependence on an industry loss index. The use of an index reduces moral hazard and generally
results in lower prices compared to traditional, purely indemnity-based reinsurance contracts. However, use of the index also
introduces basis risk since the industry loss and the reinsured company’s loss are usually not fully correlated. The aim of
this paper is to simultaneously examine basis risk and pricing of an indemnity-based industry loss warranty contract, which
is done by comparing actuarial and financial pricing approaches for different measures of basis risk. Our numerical results
show that modification of the contract parameters to reduce basis risk can either raise or lower prices, depending on the specific parameter choice. For instance, basis risk can be reduced by decreasing the industry
loss trigger, which implies higher prices, or by increasing the reinsured company attachment, thus inducing lower prices. |
| |
Keywords: | |
本文献已被 SpringerLink 等数据库收录! |
|