Imran Taib: Pricing of temperature index insurance

Imran Taib, CMA, holder et seminar med tittelen: Pricing of temperature index insurance

The aim of this talk is to introduce pricing of weather insurance contracts based on temperature indices. Three different pricing methods are analysed: the classical burn approach, index modelling and temperature modelling. We take the data from Malaysia as our empirical case. Our results show that there is a significant difference between the burn and index pricing approaches on one hand, and the temperature modelling method on the other. The latter approach is pricing the insurance contract using a seasonal autoregressive time series model for daily temperature variations, and thus provides a precise probabilistic model for the fine structure of temperature evolution. We complement our pricing analysis by an investigation of the profit/loss distribution from the contract, in the perspective of both the insured and the insurer.

Joint work with Professor Fred Espen Benth.

Published June 12, 2015 1:22 PM - Last modified June 12, 2015 1:22 PM