KTH Matematik |

Seminarierummet 3721, Institutionen för
matematik, KTH, Lindstedtsvägen 25, plan 7.
Karta!
Results show that the choice of risk measure is of great importance when analyzing catastrophe bonds and their related risks. As an example, the measure Value at Risk may fail to capture the essence of catastrophe bond risk, which in turn means that portfolio optimization with respect to the same might lead to a systematic obscurity of risk. Two coherent risk measures were found to be satisfactory at measuring catastrophe bond risk, expected shortfall and through a spectral risk measure. This thesis extends a well-known optimization method of Conditional Value at Risk to achieve a method of optimizing any spectral risk measure. The optimization results show that expected shortfall optimization leads to portfolios being, possibly only slightly, advantageous at the specific point at which it is optimized but that their characteristics may be disadvantageous at other parts of the loss distribution. The optimized spectral risk measure portfolios were proven to possess good characteristics through all parts of the loss distribution. Optimization results were compared to the popular mean-variance portfolio optimization approach. The comparison shows that the mean-variance approach handles the special distribution of catastrophe bond losses in an over-simplistic way, and that it has a severe lack of flexibility towards focusing on different aspects of risk. In contrast, the spectral risk measure optimization procedure was proven to be the most flexible and possibly the most appropriate way to optimize a portfolio of catastrophe bonds. |

Sidansvarig: Filip Lindskog Uppdaterad: 25/02-2009 |