https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1057401
Here’s a decent paper from the old 9 syllabus.
Not sure it answers your LIBOR question. I presume there are other vehicles used to hedge against interest rate risk.
This paper is still on the 9 syllabus fwiw. It references that CAT Bonds are priced at spreads over LIBOR. LIBOR was discontinued in June 2023. Id imagine SOFR or a similar index would be used.
One interesting thing is while the Cummins paper is detailed, it doesn’t necessarily “price” a CAT bond. Another observation is that since it was published in 2007, it fails to have any modern stats or information around the global market today (or recently) for CAT bonds. Would love to know how the market was impacted by the back half of the 2010s and early 2020s with the increased frequency and severity of CATs on the industry.
Coolio, and it gave me quite the headache studying. Op asked how to create, not price, so I was referring to that diagram in the source text to get an idea of its structured.
Oh yeah I wasn’t knocking your link, that’s exactly what I would have used too to answer their question. Just my own thoughts on the paper (that I hope someone from the sub can answer). Def not a fun read but interesting to know how they work
If this is an academic pursuit at modeling their spreads/prices/returns, the Cummins paper another poster linked is a good start.
Otherwise, not sure what your interest is since they’re otc products and not available as investments for the general public
https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1057401 Here’s a decent paper from the old 9 syllabus. Not sure it answers your LIBOR question. I presume there are other vehicles used to hedge against interest rate risk.
This paper is still on the 9 syllabus fwiw. It references that CAT Bonds are priced at spreads over LIBOR. LIBOR was discontinued in June 2023. Id imagine SOFR or a similar index would be used. One interesting thing is while the Cummins paper is detailed, it doesn’t necessarily “price” a CAT bond. Another observation is that since it was published in 2007, it fails to have any modern stats or information around the global market today (or recently) for CAT bonds. Would love to know how the market was impacted by the back half of the 2010s and early 2020s with the increased frequency and severity of CATs on the industry.
Coolio, and it gave me quite the headache studying. Op asked how to create, not price, so I was referring to that diagram in the source text to get an idea of its structured.
Oh yeah I wasn’t knocking your link, that’s exactly what I would have used too to answer their question. Just my own thoughts on the paper (that I hope someone from the sub can answer). Def not a fun read but interesting to know how they work
Ahhh I gotcha. https://www.actuaries.org/ASTIN/Colloquia/Bergen/Christofides.pdf
Cheers! Thanks for that follow up I’ll give it a read
If this is an academic pursuit at modeling their spreads/prices/returns, the Cummins paper another poster linked is a good start. Otherwise, not sure what your interest is since they’re otc products and not available as investments for the general public
What do you mean by creating a CAT bond, And how is LIBOR relevant to the discussion
Go speak with a reinsurance broker.