Pricing of catastrophe reinsurance and derivatives using the Cox process with shot noise intensity (Q1424705)

The authors use the Cox process (or a doubly stochastic Poisson process) to model the claim arrival process for catastrophic events. The shot noise process is used as the parameter of the doubly stochastic Poisson process to measure the number of claims due to catastrophic event, i.e. it is used as a claim intensity function to generate the Cox process. The Cox process with shot noise intensity is examined by a piecewise deterministic Markov process theory. The asymptotic distribution of the claim intensity is used to derive a pricing formulae for stop-loss reinsurance contract for catastrophic events and catastrophe insurance derivatives. After auxiliary mathematical computations, the expectation of the claim number process is presented. Then the intensity process and the claim number are recalculated with respect to the equivalent martingale measure defined by the Esscher transform. The gross premium for stop-loss reinsurance contract and arbitrage-free prices for insurance derivatives are obtained.