Keywords
incurred but not yet reported claims amount
nominal claims reporting rate
binomial model
How to Cite
Abstract
This paper proposes a discrete random model that describes the evolution of the loss ratio triggering catastrophe bonds. For this purpose, it is assumed that the total catastrophe amount is the sum of the claims reported amount and incurred but not yet claim reported amount. After establishing a deterministic claims dynamic, where the randomness of the model resides only in the occurrence or non-occurrence of a catastrophe, randomness is introduced into the model by replacing the nominal claims reporting rate by a dichotomous random variable that allows to simulate slow or fast claim filing in each period.
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