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Methodological Considerations in the Statistical Modeling of Catastrophe Bond Prices
Author(s) -
Major John A.
Publication year - 2019
Publication title -
risk management and insurance review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.386
H-Index - 16
eISSN - 1540-6296
pISSN - 1098-1616
DOI - 10.1111/rmir.12114
Subject(s) - context (archaeology) , ordinary least squares , economics , econometrics , actuarial science , bond , perspective (graphical) , property (philosophy) , mathematical economics , financial economics , computer science , finance , epistemology , artificial intelligence , paleontology , philosophy , biology
The problem of specifying and fitting a statistical model of the pricing of property catastrophe risk is addressed from a methodological perspective. Notable 21st century published efforts to do this are reviewed. The problem is framed in a business context and various strategic and tactical issues are investigated. A naïve application of ordinary least squares regression is seen to have undesirable consequences. Alternative approaches are offered, including weighted least squares with weights inversely proportional to capital requirements, and alternative functional forms. Recommendations are offered.