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Utility indifference pricing of derivatives written on industrial loss indexes

Gunther Leobacher, Philip Ngare

arXiv: 1404.0879v1 (q-fin.PR)
(Re-)Insurance, catastrophe derivatives, jump process, random thinning, utility indifference price

Abstract: We consider the problem of pricing derivatives written on some industrial loss index via utility indifference pricing. The industrial loss index is modelled by a compound Poisson process and the insurer can adjust her portfolio by choosing the risk loading, which in turn determines the demand. We compute the price of a CAT(spread) option written on that index using utility indifference pricing.

Submitted to arXiv on 03 Apr. 2014