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Economic Catastrophe Bonds

The American economic review, 2009-06, Vol.99 (3), p.628-666 [Peer Reviewed Journal]

Copyright 2009 The American Economic Association ;Copyright American Economic Association Jun 2009 ;ISSN: 0002-8282 ;EISSN: 1944-7981 ;DOI: 10.1257/aer.99.3.628 ;CODEN: AENRAA

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Title:
Economic Catastrophe Bonds
Author: Coval, Joshua D. ; Jurek, Jakub W. ; Stafford, Erik
Subjects: Asset pricing ; Bond portfolios ; Bond ratings ; Bonds ; Corporate bonds ; Credit default swaps ; Credit ratings ; Credit risk ; Default ; Derivatives ; Economic conditions ; Economic models ; Economic shock ; Estimating techniques ; Financial engineering ; Financial securities ; Market prices ; Modeling ; Options markets ; Parametric models ; Pay-off ; Price volatility ; Ratings & rankings ; Securities prices ; Studies ; Yield curves
Is Part Of: The American economic review, 2009-06, Vol.99 (3), p.628-666
Description: The central insight of asset pricing is that a security's value depends both on its distribution of payoffs across economic states and on state prices. In fixed income markets, many investors focus exclusively on estimates of expected payoffs, such as credit ratings, without considering the state of the economy in which default occurs. Such investors are likely to be attracted to securities whose payoffs resemble economic catastrophe bonds-bonds that default only under severe economic conditions. We show that many structured finance instruments can be characterized as economic catastrophe bonds, but offer far less compensation than alternatives with comparable payoff profiles.
Publisher: Nashville: American Economic Association
Language: English
Identifier: ISSN: 0002-8282
EISSN: 1944-7981
DOI: 10.1257/aer.99.3.628
CODEN: AENRAA
Source: ProQuest Central

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Economic Catastrophe Bonds

Copyright 2009 The American Economic Association ;Copyright American Economic Association Jun 2009 ;ISSN: 0002-8282 ;EISSN: 1944-7981 ;DOI: 10.1257/aer.99.3.628 ;CODEN: AENRAA

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