Catastrophe bonds beyond Markowitz:applying Omega and expected shortfall
Dr Gregor Gawron, a hedge fund analyst at RMF, and Dr Stefan Scholz, head of quantitative analysis at RMF, examine how adding CAT bonds to an investment portfolio can benefit the risk/return characteristics of the portfolio, and be anything but catastrophic for the end investor
Spreading risk exposure is a common risk management technique in insurance, reinsurance and finance. A well-diversified portfolio of uncorrelated assets can eliminate the non-systematic risk and thus improve an investor's risk profile.
A few decades ago, by simply allocating money in different countries or sectors, investors could achieve large diversification benefits. Today, due to different aspects, such as increasing globalisation, new technologies and the introduction of the common European
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