Risk Management through Derivatives Securitization

With the fluctuations in the financial markets reaching tens ofbillions of dollars in just one day, using complex financial instruments instead oftypical insurance could be more effective and cheaper to finance high-severity and low frequency risk exposures. Insurance-linked derivatives such as catastrophes bonds and weather bonds have been used for some time in the United States and European Union. The risks that they cover vary from property catastrophes, weather, general liability, and extreme mortality risks. As the number ofissuers for these securities increases and new over-thecounter (OTC) products appear on the secondary markets there is a growing need to understand how they should be priced and considered by law. I intend to analyze the methods ofpricing as well as creating a model for a weather derivative for the Illinois com production and test its impact based on past statistical dat