Valuation of structured risk management products [An article from: Insurance Mathematics and Economics]

This digital document is a journal article from Insurance Mathematics and Economics, published by Elsevier in 2004. The article is delivered in HTML format and is available in your Amazon.com Media Library immediately after purchase. You can view it with any web browser.

Description:
This paper applies valuation theory to structured risk management products. We specialize the theoretical model to two representative products, a ''double trigger'' put option and a property insurance with a retention which is a function of a commodity price. The double trigger refers to the fact that the option has to satisfy two conditions in order to be in the money: the underlying equity must be below the strike price and, in addition, a specified catastrophic event must have occurred and affected the insured firm. These examples illustrate how the standard valuation theory for pricing risk in an arbitrage-free market should be applied to products engineered to manage multiple risks within the firm.