Chatoro, M, Mitra, S., Pantelous, A.A. and Shao, J. 2023. Catastrophe Bond Pricing In The Primary Market: The Issuer Effect And Pricing Factors. International Review of Financial Analysis. 85 102431. https://doi.org/10.1016/j.irfa.2022.102431
| Title | Catastrophe Bond Pricing In The Primary Market: The Issuer Effect And Pricing Factors |
|---|---|
| Type | Journal article |
| Authors | Chatoro, M, Mitra, S., Pantelous, A.A. and Shao, J. |
| Abstract | The COVID pandemic has highlighted the importance of hedging against catastrophic events, for which the catastrophe bond market plays a critical role. Our paper develops a two-level modelling and uses a unique, hand-collected dataset, which is one of the largest and most detailed datasets to date containing: 101 different issuers, 794 different bonds, spanning 1997-2020. We identify issuer effects robustly, isolating them from bond specific pricing effects, therefore providing more credible pricing factor results. We find that bond pricing and volatility are heavily impacted by the issuer, causing 26% of total price variation. We also identify specific issuer characteristics that significantly impact bond pricing and volatility, such as the issuer’s line of business accounting for upto 36% of total price variation. We further find that issuer effects are significant over different market cycles and time periods, causing substantial price variation. The size and content of our data also enables us to identify the counter-intuitive relation between bond premiums and maturity, and bond premiums and hybrid bond |
| Keywords | Catastrophe risk bonds |
| primary market | |
| multilevel modelling | |
| issuer effect | |
| hedging | |
| Article number | 102431 |
| Journal | International Review of Financial Analysis |
| Journal citation | 85 |
| ISSN | 1057-5219 |
| 1873-8079 | |
| Year | 2023 |
| Publisher | Elsevier |
| Accepted author manuscript | License CC BY-NC-ND 4.0 File Access Level Open (open metadata and files) |
| Digital Object Identifier (DOI) | https://doi.org/10.1016/j.irfa.2022.102431 |
| Publication dates | |
| Published online | 26 Nov 2022 |
| Published in print | Jan 2023 |