Catastrophe Bond Pricing In The Primary Market: The Issuer Effect And Pricing Factors

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

TitleCatastrophe Bond Pricing In The Primary Market: The Issuer Effect And Pricing Factors
TypeJournal article
AuthorsChatoro, 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
triggers

KeywordsCatastrophe risk bonds
primary market
multilevel modelling
issuer effect
hedging
Article number102431
JournalInternational Review of Financial Analysis
Journal citation85
ISSN1057-5219
1873-8079
Year2023
PublisherElsevier
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 online26 Nov 2022
Published in printJan 2023

Related outputs

A Real Options Approach To Measuring Freedom In Sen’s Capabilities Approach
Mitra, S. 2022. A Real Options Approach To Measuring Freedom In Sen’s Capabilities Approach. International Journal of Sustainable Economy. 14 (1), pp. 98-110. https://doi.org/10.1504/IJSE.2022.119716

Optimal Feedback Control of Stock Prices Under Credit Risk Dynamics
Mitra, S., Jinghai Shao and Karathanasopoulos, Andreas 2022. Optimal Feedback Control of Stock Prices Under Credit Risk Dynamics. Annals of Operations Research. 313, pp. 1285-1318. https://doi.org/10.1007/s10479-021-04002-6

Health Care Investment: The Case of Multiple Sources of Risk
Jokung, O. and Mitra, S. 2020. Health Care Investment: The Case of Multiple Sources of Risk. Asia-Pacific Financial Markets. 27, pp. 231-255. https://doi.org/10.1007/s10690-019-09291-3

An analysis of dollar cost averaging and market timing investment strategies
Lars Kirkby, J., Mitra, S. and Nguyen, D. 2020. An analysis of dollar cost averaging and market timing investment strategies. European Journal of Operational Research. 286 (3), pp. 1168-1186. https://doi.org/10.1016/j.ejor.2020.04.055

FinTech revolution: the impact of management information systems upon relative firm value and risk
Mitra, S. and Karathanasopoulos, A. 2020. FinTech revolution: the impact of management information systems upon relative firm value and risk. Journal of Banking and Financial Technology. 4, p. 175–187. https://doi.org/10.1007/s42786-020-00023-0

Firm Value And The Impact of Operational Management
Mitra, S. and Karathanasopoulos, A. 2019. Firm Value And The Impact of Operational Management. Asia-Pacific Financial Markets. 26, pp. 61-85. https://doi.org/10.1007/s10690-018-9258-1

Stock-ADR Arbitrage: Microstructure Risk
Mitra, S. 2019. Stock-ADR Arbitrage: Microstructure Risk. Journal of International Financial Markets, Institutions and Money. 63 101132. https://doi.org/10.1016/j.intfin.2019.08.004

Efficient Option Risk Measurement With Reduced Model Risk
Mitra, S. 2017. Efficient Option Risk Measurement With Reduced Model Risk. Insurance: Mathematics and Economics. 72, pp. 163-174. https://doi.org/10.1016/j.insmatheco.2016.09.006

Stock Market Prediction Using Evolutionary Support Vector Machines: An Application To The ASE20 Index
Karathanasopoulos, A., Theofilatos, K.A., Sermpinis, D., Dunis, C., Mitra, S. and Stasinakis, C. 2016. Stock Market Prediction Using Evolutionary Support Vector Machines: An Application To The ASE20 Index. European Journal of Finance. 22 (12), pp. 1145-1163. https://doi.org/10.1080/1351847X.2015.1040167

Operational Risk: Emerging Markets, Sectors and Measurement
Mitra, S., Karathanasopoulos, A., Sermpinis, G., Dunis, C. and Hood, J. 2015. Operational Risk: Emerging Markets, Sectors and Measurement . European Journal of Operational Research. 241 (1), pp. 122-132. https://doi.org/10.1016/j.ejor.2014.08.021

Permalink - https://westminsterresearch.westminster.ac.uk/item/w0733/catastrophe-bond-pricing-in-the-primary-market-the-issuer-e-ect-and-pricing-factors


Restricted files

Accepted author manuscript

Under embargo until 26 May 2024

Share this

Usage statistics

13 total views
1 total downloads
These values cover views and downloads from WestminsterResearch and are for the period from September 2nd 2018, when this repository was created.