Pricing catastrophe derivatives using a recursive evaluation approach

Yu-Hong Liu, Mao Wei Hung, I. Ming Jiang, Cheng Han Kuei

Research output: Contribution to journalArticlepeer-review


This paper assumes that the underlying aggregate catastrophe claims process is the compound Poisson process and applies the recursive evaluation approach to compute the compound Poisson distribution. A novel, practical pricing model is developed for catastrophe insurance derivatives. The proposed pricing model simplifies the procedure of probability computation, particularly for massive catastrophe claims, and helps hedging insurance companies apply probability assessment techniques to identify derivative prices. The recursive evaluation approach to price catastrophe derivatives is more effective than the conventional Monte Carlo simulation scheme in terms of the required computing time and precision.

Original languageEnglish
Pages (from-to)569-598
Number of pages30
JournalAsia-Pacific Journal of Financial Studies
Issue number4
Publication statusPublished - 2008

All Science Journal Classification (ASJC) codes

  • Finance


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