Catastrophe Bonds: An Important New Financial Instrument

Michael Edesess: The paper describes key features of catastrophe bonds or CAT bonds.

Author(s):

Michael Edesess, PhD

Research Associate, EDHEC-Risk Institute

CAT bonds are issued by a reinsurer for indemnification against tail risks of a major disaster such as a hurricane, earthquake, or pandemic. The money with which investors purchase CAT bonds is deposited in safe securities such as US Treasuries. The investor then receives interest on these securities plus premiums paid regularly by the issuer of the bond. If a “triggering event” (the covered catastrophe) occurs before maturity the bond may “default” in that investors may not be returned part or all of their principal, which is used to cover insured claims. CAT bonds may be indemnity bonds, meaning that principal is used to pay claims if they exceed in aggregate some specified  minimum, or they may be “parametric” bonds if principal loss is triggered by a natural event, such as hurricane winds exceeding a specified minimum.
Pdf
Catastrophe Bonds: An Important New Financial Instrument...
(-1.00 B)
Type: Working paper
Date: le 07/07/2014
Extra information : For more information, please contact EDHEC Research and Development Department [ research@drd.edhec.edu ]
Research Cluster : Finance

See Also

[Student Experience] Immersion trip - Welcome to San Francisco!
News
- 25-05-2018
Immersion Trip abroad: focus on EDHEC students' experience Silicon Valley is well-known...
News
- 25-05-2018
EDHEC-Risk Institute is pleased to announce that Kati Eriksson, Head of Investments, Aalto University Endowment have joined its international advisory board, which brings together...
The EDHEC PhD in Finance Programme adds two new alumni
News
- 21-05-2018
On 17 May 2017, two EDHEC PhD in Finance candidates (executive track), Stefano Dova and...
EDHEC Business School hosts the Family Business Extension  of the 38th Strategic Management Society (SMS) Annual Conference
News
- 18-05-2018
  Like in previous years, the 2018 Family Business Extension will bring together a...