Analysis of Applications of Some Ex-Ante Instruments for the Transfer of Catastrophic Risks

Nowak, P. (1999). Analysis of Applications of Some Ex-Ante Instruments for the Transfer of Catastrophic Risks. IIASA Interim Report. IIASA, Laxenburg, Austria: IR-99-075

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Abstract

The purpose of the work is to develop a prototype model that can be used to illustrate a model-based support for the analysis of decisions about ex-ante financial instruments for coping with consequences of natural catastrophes in developing countries. The prototype model is based on a model presented by P.K. Freeman and G.Ch. Pflug, but it has been adapted to the situation in Poland and modified to permit the analysis of various instruments for risk transfer. The proposed model considers a portfolio of assets (such as infrastructures, private property, etc.) that generates deterministic returns, but it is affected by damages caused by floods. A stochastic model of damages caused by floods has been formulated in order to allow the comparison of risk transfer instruments (such as catastrophe bonds and insurance) for various layers of the portfolio values.

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