Catastrophe Bonds - An Evaluation Under Revised Collateral Structures
(2024) NEKN02 20241Department of Economics
- Abstract (Swedish)
- CAT bonds allow institutions to transfer insurance exposure from their balance sheet onto the capital market to hedge against catastrophe-linked payment obligations. For investors in the capital markets, CAT bonds are, at least theoretically, a means of employing capital to earn a return that is uncorrelated with alternative investments. Grounded in this theoretical approach, we investigate the potential for CAT bonds as a zero-beta investment class under the revised collateral structures implemented following the market’s turmoil during the 2008 financial crisis, a period that prior scholars have used to disprove CAT bonds from a zero-beta perspective. We investigated a comprehensive seven-year period centred around the COVID-19 financial... (More)
- CAT bonds allow institutions to transfer insurance exposure from their balance sheet onto the capital market to hedge against catastrophe-linked payment obligations. For investors in the capital markets, CAT bonds are, at least theoretically, a means of employing capital to earn a return that is uncorrelated with alternative investments. Grounded in this theoretical approach, we investigate the potential for CAT bonds as a zero-beta investment class under the revised collateral structures implemented following the market’s turmoil during the 2008 financial crisis, a period that prior scholars have used to disprove CAT bonds from a zero-beta perspective. We investigated a comprehensive seven-year period centred around the COVID-19 financial crisis by employing correlation and cointegration analysis. Our results indicate that CAT bonds exhibit zero-beta characteristics in the short run during both pre-crisis and crisis periods. However, the evidence is inconclusive for the post-crisis period. In the long run, our findings suggest that CAT bonds are zero-beta only when compared against alternative fixed-income investments. These empirical findings provide insights into previously unanswered queries and extend the knowledge framework on CAT bonds. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/9156592
- author
- Kalms, Love LU
- supervisor
- organization
- course
- NEKN02 20241
- year
- 2024
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- Catastrophe bond, Zero-beta, Diversification.
- language
- English
- id
- 9156592
- date added to LUP
- 2024-08-12 15:57:26
- date last changed
- 2024-08-12 15:57:26
@misc{9156592,
abstract = {{CAT bonds allow institutions to transfer insurance exposure from their balance sheet onto the capital market to hedge against catastrophe-linked payment obligations. For investors in the capital markets, CAT bonds are, at least theoretically, a means of employing capital to earn a return that is uncorrelated with alternative investments. Grounded in this theoretical approach, we investigate the potential for CAT bonds as a zero-beta investment class under the revised collateral structures implemented following the market’s turmoil during the 2008 financial crisis, a period that prior scholars have used to disprove CAT bonds from a zero-beta perspective. We investigated a comprehensive seven-year period centred around the COVID-19 financial crisis by employing correlation and cointegration analysis. Our results indicate that CAT bonds exhibit zero-beta characteristics in the short run during both pre-crisis and crisis periods. However, the evidence is inconclusive for the post-crisis period. In the long run, our findings suggest that CAT bonds are zero-beta only when compared against alternative fixed-income investments. These empirical findings provide insights into previously unanswered queries and extend the knowledge framework on CAT bonds.}},
author = {{Kalms, Love}},
language = {{eng}},
note = {{Student Paper}},
title = {{Catastrophe Bonds - An Evaluation Under Revised Collateral Structures}},
year = {{2024}},
}