This dissertation includes two topics. For the first topic about the housing price jump risk, we use EM gradient algorithms to estimate parameters of the jump diffusion model and test whether the US monthly housing price have jump risk during 1986 to 2006. Then, in order to obtain a viable pricing framework of mortgage insurance contracts, this paper uses the jump diffusion processes of Merton (1976) to model the dynamic process of housing price. Using this model, we investigate the impact of price jump risk on the valuation of mortgage insurance premium from jump intensity, abnormal volatility of jump size and normal volatility. Empirical results indicate that the abnormal volatility of jump size has the most significant impact on the mortgage insurance premium.
For the second topic about the catastrophe risk, we investigate that, for catastrophic events, the assumption that catastrophe claims occur in terms of the Poisson process seems inadequate as it has constant intensity. We propose Markov Modulated Poisson process to model the arrival process for catastrophic events. Under this process, the underlying state is governed by a homogenous Markov chain, and it is the generalization of Cummins and Geman (1993, 1995), Chang, Chang, and Yu (1996), Geman and Yor (1997) and Vaugirard (2003a, 2003b). We apply Markov jump diffusion model to derive pricing formulas for catastrophe insurance products, included catastrophe futures call option, catastrophe PCS call spread and catastrophe bond. We use the data of PCS index and the annual number of hurricane events during 1950 to 2004 to test the quality of the fitting under the Markov Modulated Poisson process and the Poisson process. We reach the conclusion that the Markov Modulated Poisson process is fitter than the Poisson process and Weiner process in modeling the arrival rate of hurricane events when pricing three insurance products. Hence, if different status of climate environment has significant different arrival intensity in real economy, using jump diffusion model to evaluate CAT insurance products could cause significant mispricing.
| Identifer | oai:union.ndltd.org:NSYSU/oai:NSYSU:etd-0929108-133321 |
| Date | 29 September 2008 |
| Creators | Chang, Chia-Chien |
| Contributors | Yu-Chuan Huang, Ming-Chi Chen, Ho-Chyuan Chen, Jen-Sin Lee, So-de Shyu |
| Publisher | NSYSU |
| Source Sets | NSYSU Electronic Thesis and Dissertation Archive |
| Language | English |
| Detected Language | English |
| Type | text |
| Format | application/pdf |
| Source | http://etd.lib.nsysu.edu.tw/ETD-db/ETD-search/view_etd?URN=etd-0929108-133321 |
| Rights | campus_withheld, Copyright information available at source archive |
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