Utility indifference pricing of derivatives written on industrial loss indexes

Abstract

We consider the problem of pricing derivatives written on some industrial loss index via utility indifference pricing. The industrial loss index is modelled by a compound Poisson process and the insurer can adjust her portfolio by choosing the risk loading, which in turn determines the demand. We compute the price of a CAT(spread) option written on that index using utility indifference pricing.

(Re-)Insurance, catastrophe derivatives, jump process, random thinning, utility indifference price