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Statistiscal Analysis of the Spreads of Catastrophe Bonds at the Time of Issue

Published online by Cambridge University Press:  09 August 2013

Dimitris Papachristou
Dimitris Papachristou*
Affiliation:
Financial Services Authority, 25 The North Colonade, Canary Wharf, London E14 5HS, Tel: +44 20 7066 0488, E-mail: dimitris.papachristou@fsa.gov.uk
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Abstract

In this paper the catastrophe bond prices, as determined by the market, are analysed. The limited published work in this area has been carried out mainly by cat bond investors and is based either on intuition, or on simple linear regression on one factor or on comparisons of the process of cat bonds with similar features. In this paper a Generalised Additive Model is fitted to the market data. The statistical significance of different factors which may affect the cat bond prices is examined and the effect of these factors on the prices is measured. A statistical framework and analysis ould provide insight into the cat bond pricing and could have applications among other things in the construction of a cat bond portfolio, cat bond price indices and in understanding changes of the price of risk over time.

Keywords

Catastrophe BondsBond PricingRegressionGeneralised Additive Models
Type
Research Article
Information
ASTIN Bulletin: The Journal of the IAA , Volume 41 , Issue 1 , May 2011 , pp. 251 - 277
Copyright
Copyright © International Actuarial Association 2011

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