Optimal control under uncertainty: Application to the issue of CAT bonds
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Publication:6307262
DOI10.1016/J.INSMATHECO.2024.03.004arXiv1809.09545MaRDI QIDQ6307262FDOQ6307262
Authors: Nicolas Baradel 
Publication date: 25 September 2018
Abstract: We propose a general framework for studying optimal issue of CAT bonds in the presence of uncertainty on the parameters. In particular, the intensity of arrival of natural disasters is inhomogeneous and may depend on unknown parameters. Given a prior on the distribution of the unknown parameters, we explain how it should evolve according to the classical Bayes rule. Taking these progressive prior-adjustments into account, we characterize the optimal policy through a quasi-variational parabolic equation, which can be solved numerically. We provide examples of application in the context of hurricanes in Florida.
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