Risk cubes or price risk and ratings (Part II)

Morton N. Lane, Oleg Y. Movchan

Research output: Contribution to journalArticlepeer-review

Abstract

Risk is difficult to measure - so difficult that no single measure seems robust enough for all circumstances. This is especially true of measuring the risk contained in insurance-linked securities. Insurance risk is usually asymmetrically skewed. As a conse-quence, traditional capital market risk measures - expected loss, probability of default, and the standard deviation of return out-comes - are less than perfect to the insurance task. Without a good risk measure, it is impossible to compare the risk-adjusted pricing of insurance-linked notes on a consistent basis. It is impossible to tell which securities are cheap and which are expensive. It is impossible to decide on their value relative to more traditional investments.

Original languageEnglish (US)
Pages (from-to)71-86
Number of pages16
JournalJournal of Risk Finance
Volume1
Issue number1
DOIs
StatePublished - Jan 1 1999
Externally publishedYes

ASJC Scopus subject areas

  • Finance

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