CAT bond pricing and coverage design against natural perils

Lorenzo Hofer, Paolo Gardoni, Mariano Angelo Zanini

Research output: Chapter in Book/Report/Conference proceedingChapter


Catastrophe (CAT) bonds are risk-linked securities used by the insurance industry to transfer risk associated with the occurrence of natural disasters to the capital market. Despite their growing importance, relatively few studies on CAT bond pricing, design and application are available in the literature. Current state-of-the-art on CAT bonds has some limitations. In particular, the existing pricing formulations do not account for uncertainties in model parameters, and are not contextualized in a more general CAT bond coverage design procedure for an area of interest. The present chapter aims to address these limitations. First, the chapter presents a risk-based CAT bond pricing method that accounts for the uncertainties in the model parameters, and thus leading to a CAT bond price based on a given acceptable level of risk. Second, a more general method designed to transfer catastrophe risks for a given portfolio via the use of CAT bonds is presented. Lastly, a practical application of the proposed CAT bond-based coverage is illustrated considering as case-study of earthquake-induced losses to the residential building portfolio of Italy.

Original languageEnglish (US)
Title of host publicationRoutledge Handbook of Sustainable and Resilient Infrastructure
PublisherTaylor and Francis
Number of pages23
ISBN (Electronic)9781351392778
ISBN (Print)9781138306875
StatePublished - Jan 1 2018

ASJC Scopus subject areas

  • General Economics, Econometrics and Finance
  • General Business, Management and Accounting
  • General Social Sciences


Dive into the research topics of 'CAT bond pricing and coverage design against natural perils'. Together they form a unique fingerprint.

Cite this