Pricing perpetual American CatEPut options when stock prices are correlated with catastrophe losses

Hwa Sung Kim, Bara Kim, Jerim Kim

Research output: Contribution to journalArticle

4 Citations (Scopus)

Abstract

A catastrophe equity put (CatEPut) option is a catastrophe derivative that allows insurance companies to raise equity capital when they face catastrophe losses. This study focuses on a pricing model for a CatEPut options. First, unlike previous research, this study provides a CatEPut option pricing model in which stock prices and catastrophe losses are moderately correlated. Second, this study examines the practical characteristics of American CatEPut options. Third, through a numerical analysis, we observe that it is necessary to consider the effects of a moderate correlation between stock prices and catastrophe losses on the prices of perpetual American CatEPut options.

Original languageEnglish
Pages (from-to)15-22
Number of pages8
JournalEconomic Modelling
Volume41
DOIs
Publication statusPublished - 2014 Aug

Keywords

  • Bivariate exponential distribution
  • Catastrophe equity put option
  • Option pricing

ASJC Scopus subject areas

  • Economics and Econometrics

Fingerprint Dive into the research topics of 'Pricing perpetual American CatEPut options when stock prices are correlated with catastrophe losses'. Together they form a unique fingerprint.

  • Cite this