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Mitigating Extreme Risks through Securitization

March 2017

Sponsored by the Society of Actuaries Research Expanding Boundaries Pool, this research report introduces readers to Insurance-linked securities (ILSs) emphasizing catastrophe bonds (CAT) and industry loss warranties (ILWs). The report also discusses the pricing of ILSs and issues in utilizing them as hedging tools. Authored by Jose Blanchet, Henry Lam, Qihe Tang, and Zhongyi Yuan, the report develops a general pricing theory for CAT bonds and establishes a framework for quantifying basis risk of hedging using ILWs relying on Extreme Value Theory to model and measure the catastrophe risks involved.

Report

Mitigating Extreme Risks through Securitization

Thank You

The Sponsor would like to thank the following individuals that served on the Project Oversight Group.

Jim Berger
Tom Edwalds
Robert Reitano
David Wylde
Jan Schuh, SOA Sr. Research Administrator
Ronora Stryker, SOA Research Actuary

Questions or Comments

If you have comments or questions, please contact research@soa.org.