Zero-Beta Characteristic of CAT Bonds

摘要

In order to spread catastrophic risk further in the capital market, the relation between these two parts is analyzed. Beta values of index returns between CAT bonds and the stock and bonds markets in US and Europe are calculated in the period covering the global financial crisis, which can be approximated to zero. By taking this kind of assets into a market portfolio, the efficient frontier is improved, that is, the risk is reduced and the expected return is increased. It is illustrated CAT bonds can be adopted, as a supplement of catastrophe insurance, to transfer catastrophic risk into a larger pool, even during the 2008 global financial crisis, since they are zero-beta assets.