Pricing risk-based catastrophe bonds for earthquakes at an urban scale
Abstract Catastrophe risk-based bonds are used by governments, financial institutions and (re)insurers to transfer the financial risk associated to the occurrence of catastrophic events, such as earthquakes, to the capital market. In this study, we show how municipalities prone to earthquakes can us...
| Main Authors: | , |
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| Format: | Article |
| Language: | English |
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Nature Portfolio
2022-06-01
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| Series: | Scientific Reports |
| Online Access: | https://doi.org/10.1038/s41598-022-13588-1 |
| _version_ | 1811242258954977280 |
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| author | Harsh K. Mistry Domenico Lombardi |
| author_facet | Harsh K. Mistry Domenico Lombardi |
| author_sort | Harsh K. Mistry |
| collection | DOAJ |
| description | Abstract Catastrophe risk-based bonds are used by governments, financial institutions and (re)insurers to transfer the financial risk associated to the occurrence of catastrophic events, such as earthquakes, to the capital market. In this study, we show how municipalities prone to earthquakes can use this type of insurance-linked security to protect their building stock and communities from economic losses, and ultimately increase their earthquake resilience. We consider Benevento, a middle-sized historical town in southern Italy, as a case study, although the same approach is applicable to other urban areas in seismically active regions. One of the crucial steps in pricing catastrophe bonds is the computation of aggregate losses. We compute direct economic losses for each exposed asset based on high spatial resolution hazard and exposure models. Finally, we use the simulated loss data to price two types of catastrophe bonds (zero-coupon and coupon bonds) for different thresholds and maturity times. Although the present application focuses on earthquakes, the framework can potentially be applied to other natural disasters, such as hurricanes, floods, and other extreme weather events. |
| first_indexed | 2024-04-12T13:49:05Z |
| format | Article |
| id | doaj.art-2b1f80be5d404ccaa463ad375deb3c3d |
| institution | Directory Open Access Journal |
| issn | 2045-2322 |
| language | English |
| last_indexed | 2024-04-12T13:49:05Z |
| publishDate | 2022-06-01 |
| publisher | Nature Portfolio |
| record_format | Article |
| series | Scientific Reports |
| spelling | doaj.art-2b1f80be5d404ccaa463ad375deb3c3d2022-12-22T03:30:35ZengNature PortfolioScientific Reports2045-23222022-06-0112111210.1038/s41598-022-13588-1Pricing risk-based catastrophe bonds for earthquakes at an urban scaleHarsh K. Mistry0Domenico Lombardi1Department of Mechanical, Aerospace and Civil Engineering, University of ManchesterDepartment of Mechanical, Aerospace and Civil Engineering, University of ManchesterAbstract Catastrophe risk-based bonds are used by governments, financial institutions and (re)insurers to transfer the financial risk associated to the occurrence of catastrophic events, such as earthquakes, to the capital market. In this study, we show how municipalities prone to earthquakes can use this type of insurance-linked security to protect their building stock and communities from economic losses, and ultimately increase their earthquake resilience. We consider Benevento, a middle-sized historical town in southern Italy, as a case study, although the same approach is applicable to other urban areas in seismically active regions. One of the crucial steps in pricing catastrophe bonds is the computation of aggregate losses. We compute direct economic losses for each exposed asset based on high spatial resolution hazard and exposure models. Finally, we use the simulated loss data to price two types of catastrophe bonds (zero-coupon and coupon bonds) for different thresholds and maturity times. Although the present application focuses on earthquakes, the framework can potentially be applied to other natural disasters, such as hurricanes, floods, and other extreme weather events.https://doi.org/10.1038/s41598-022-13588-1 |
| spellingShingle | Harsh K. Mistry Domenico Lombardi Pricing risk-based catastrophe bonds for earthquakes at an urban scale Scientific Reports |
| title | Pricing risk-based catastrophe bonds for earthquakes at an urban scale |
| title_full | Pricing risk-based catastrophe bonds for earthquakes at an urban scale |
| title_fullStr | Pricing risk-based catastrophe bonds for earthquakes at an urban scale |
| title_full_unstemmed | Pricing risk-based catastrophe bonds for earthquakes at an urban scale |
| title_short | Pricing risk-based catastrophe bonds for earthquakes at an urban scale |
| title_sort | pricing risk based catastrophe bonds for earthquakes at an urban scale |
| url | https://doi.org/10.1038/s41598-022-13588-1 |
| work_keys_str_mv | AT harshkmistry pricingriskbasedcatastrophebondsforearthquakesatanurbanscale AT domenicolombardi pricingriskbasedcatastrophebondsforearthquakesatanurbanscale |