Pricing And Hedging Of Catastrophe European Chooser Options Written On Stock

The catastrophe risks are generated by these events of natural catastrophe which are of sudden, nopredicting, noavoiding and have great harmfulness. In recent decades,the worldwide natural dis-asters (like earthquake, tsunami, hurricane, flood drought and debris flows etc.)occur frequently, and cause huge loss of lives and property. The occurred frequency of loss and severity of the catas-trophe are increasing wonderfully. Caused by the huge insurance compensation let the traditional insurance management way bear the great challenge, and restrict the development of the insurance industry. Catastrophe option is a financial instrument for shifting the insurance risks, combines the insurance market with stock market effectively by securitizing the catastrophe risks,and spreads the catastrophe risks of insurance or reinsurance industry by means of the capital market. These result in integration between finance and insurance.Although the catastrophe options or the catastrophe stock options are favourited by the in-surance industry and many investors, they are not very well developed in the market. The main reasons include the difficult pricing the option accurately and the short of amount of securitised products for investor choosing. Based on these mentioned above,an new product of catastrophe option, called by catastrophe chooser option Written on stock whose pricing and hedging are con-sidered in this thesis. Main contributions are as follows:In chapter2, the pricings of both European catastrophe simple chooser option and complex chooser option are considered under the stock’s price following the diffusion model and constant interest rate framework with the catastrophe losses generated by a compound Poisson process. The closed-form solutions of the price and hedging strategy are obtained. Furthermore, the pricing closed-form solution of the European chooser options are also gained and some numerical exam-ples such as the affect of the parameters λ, θ,δ to the option are provided under the size of the losses satisfying the normal distribution.In chapter3,we derived the analytic price formulas for the European catastrophe chooser op-tions within the stochastic interest rate framework by using forward martingale method, and the explicit solutions of the chooser options are obtained. Some behaviours of parameters in the Va-sicek model are analyzed with numerical examples.Main conclusions and the further research works are summarized in chapter4.