CAS Exam 9 Spring 2013, Question 13
Study guide: Exam 9
A company is considering two risk management strategies. It will either issue a CAT bond or enter into a catastrophe risk swap.
The company's decision will be based on the following three concerns:
- Counterparty default risk
- Basis risk
- Risk diversification
Evaluate the company's two risk management strategies based on each concern and choose the better strategy for the company.
Part a (2.25 points)
Answer this question and see the worked solution