We investigate whether the inclusion of Cat Bonds in portfolios composed of traditional assets and common factors is beneficial to investors. Various mean-variance spanning tests performed for the period of 2002 to 2017 show that under different market conditions, the addition of Cat Bonds gives...

In this paper, we present a new model that takes an arbitrage approach to the valuation of catastrophic risk bonds (CAT bonds). The model considers the sponsor's exposure to currency exchange risk and the risk of catastrophic events. We use a jump-diffusion process for catastrophic events, a...