Cummins, J. David; Lalonde, David; Phillips, Richard D. - Financial Institutions Center, Wharton School of Business - 2000
This paper analyzes the basis risk of catastrophic-loss (CAT) index derivatives, which securitize losses from catastrophic events such as hurricanes and earthquakes. We analyze the hedging effectiveness of these instruments for 255 insurers writing 93 percent of the insured residential property...