Author(s)

Zied Chaieb, Djibril Gueye

Quanteam Group (Laboratoire de recherche Quantlabs), Paris, France.

The main goal of this paper is to use the enlargement of filtration framework for pricing zero-coupon CAT bonds. For this purpose, we develop two models where the trigger event time is perfectly covered by an increasing sequence of stopping times with respect to a reference filtration. Hence, depending on the nature of these stopping times the trigger event time can be either accessible or totally inaccessible. When some of these stopping times are not predictable, the trigger event time is totally inaccessible, and very nice mathematical computations can be derived. When the stopping times are predictable, the trigger event time is accessible, and this case would be a meaningful choice for Model 1 from a practical point of view since features like seasonality are already captured by some quantities such as the stochastic intensity of the Poisson process. We compute the main tools for pricing the zero-coupon CAT bond and show that our constructions are more general than some existing models in the literature. We obtain some closed-form prices of zero-coupon CAT bonds in Model 2 so we give a numerical illustrative example for this latter.

CAT Reinsurance, Zero-Coupon CAT Bonds, Pricing, Enlargement of Filtration, Shot-Noise Processes, Reduced-Form Models

Chaieb, Z. and Gueye, D. (2022) Pricing Zero-Coupon CAT Bonds Using the Enlargement of Filtration Theory: A General Framework. Journal of Mathematical Finance, 12, 582-605. doi: 10.4236/jmf.2022.123031.