Environmental Modeling & Assessment

, Volume 19, Issue 3, pp 207–220

Frequency and Severity Modelling Using Multifractal Processes: An Application to Tornado Occurrence in the USA and CAT Bonds

Article

DOI: 10.1007/s10666-013-9388-9

Cite this article as:
Hainaut, D. & Boucher, JP. Environ Model Assess (2014) 19: 207. doi:10.1007/s10666-013-9388-9
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Abstract

This paper proposes a statistical model for insurance claims arising from climatic events, such as tornadoes in the USA, that exhibit a large variability both in frequency and intensity. To represent this variability and seasonality, the claims process modelled by a Poisson process of intensity equal to the product of a periodic function, and a multifractal process is proposed. The size of claims is modelled in a similar way, with gamma random variables. This method is shown to enable simulation of the peak times of damage. A two-dimensional multifractal model is also investigated. The work concludes with an analysis of the impact of the model on the yield of weather bonds linked to damage caused by tornadoes.

Keywords

Multifractal process Claims process Poisson Gamma Dependence CAT bonds 

Copyright information

© Springer Science+Business Media Dordrecht 2013

Authors and Affiliations

  1. 1.Rennes Business School-CRESTRennesFrance
  2. 2.Département de mathématiquesUQAMQuébecCanada

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