How does financial theory apply to catastrophe-linked derivatives? En empirical test of several princing models

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Show simple item record Balbás, Alejandro Longarela, Iñaki R. Lucia, Julio J.
dc.contributor.editor Universidad Carlos III de Madrid. Departamento de Economía de la Empresa 2010-01-20T08:14:38Z 2010-01-20T08:14:38Z 1999-01
dc.description.abstract The paper focuses on the PCS Catastrophe Insurance Option Contracts and empirically tests the degree of agreement between their real quotes and the standard fmancial theory. The highest possible precision is incorporated since the real quotes are perfectly synchronized and the bid-ask spread is always considered. A static setting is assumed and the main topics of arbitrage, hedging and portfolio choice are involved in the analysis. Three significant conclusions are reached. First, the catastrophe derivatives may be very often priced by arbitrage methods, and the paper provides some examples of practical strategies that were available in the market. Second, hedging arguments also yield adequate criteria to price the derivatives and some real examples are provided as well. Third, in a variance aversion context many agents could be interested in selling derivatives to invest the money in stocks and bonds. These strategies show a suitable level in the variance for any desired expected return. Furthermore, the methodology here applied seems to be quite general and may be useful to price other derivative securities. Simple assumptions on the underlying asset behavior are the only required conditions.
dc.format.mimetype application/pdf
dc.language.iso eng
dc.relation.ispartofseries UC3M Working papers. Business Economics
dc.relation.ispartofseries 99-07-03
dc.rights Atribución-NoComercial-SinDerivadas 3.0 España
dc.title How does financial theory apply to catastrophe-linked derivatives? En empirical test of several princing models
dc.type workingPaper
dc.subject.eciencia Empresa
dc.rights.accessRights openAccess
dc.affiliation.dpto UC3M. Departamento de Economía de la Empresa
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