Utility Indifference Pricing of Insurance Catastrophe Derivatives

Andreas Eichler; Gunther Leobacher; Michaela Szölgyenyi

doi:10.1007/s13385-017-0154-2

Utility Indifference Pricing of Insurance Catastrophe Derivatives

Andreas Eichler, Gunther Leobacher, Michaela Szölgyenyi

Institute for Statistics and Mathematics

Publication: Scientific journal › Journal article › peer-review

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Abstract

We propose a model for an insurance loss index and the claims process of a single insurance company holding a fraction of the total number of contracts that captures both ordinary losses and losses due to catastrophes. In this model we price a catastrophe derivative by the method of utility indifference pricing. The associated stochastic optimization problem is treated by techniques for piecewise deterministic Markov processes. A numerical study illustrates our results.

Original language	English
Pages (from-to)	515 - 534
Journal	European Actuarial Journal
Volume	7
DOIs	https://doi.org/10.1007/s13385-017-0154-2
Publication status	Published - 2017

Austrian Classification of Fields of Science and Technology (ÖFOS)

101014 Numerical mathematics
401117 Viticulture
101024 Probability theory
101007 Financial mathematics

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Eichler etal 2017 EAJ Utility-indifference-pricingFinal published version, 585 KBLicence: CC BY

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AB - We propose a model for an insurance loss index and the claims process of a single insurance company holding a fraction of the total number of contracts that captures both ordinary losses and losses due to catastrophes. In this model we price a catastrophe derivative by the method of utility indifference pricing. The associated stochastic optimization problem is treated by techniques for piecewise deterministic Markov processes. A numerical study illustrates our results.

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DO - 10.1007/s13385-017-0154-2

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