Munich Personal RePEc Archive

Rational and mechanics of a peak risk variance swap for a property insurance portfolio

Zvezdov, Ivelin (2012): Rational and mechanics of a peak risk variance swap for a property insurance portfolio.

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Abstract

In this technical report we explore the motivation, structuring and detailed mechanics of a variance swap contract adapted for a property insurance portfolio. We structure, price and test sensitivities of the swap contract using real event historical and modeled natural catastrophe loss data. Our key motivation is to propose an element of financial engineering innovation to insurance portfolio risk management to allow for constructing hedging strategies that may not be possible to achieve with traditional reinsurance treaties and contracts.

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