Design And Pricing Of Hull Insurance Option

As one of the oldest marine insurance products and the origin of modern insurance,hull insurance has the features of high concentration,high accident frequency and broad coverage.The past five years the development of China's hull insurance into a bottleneck,the phenomenon of slow growth in premium income and payment rate rising is a reflection of the lack of effective management of risk of the sea.And lack of risk management tools may be one of the important reasons.Insurance derivatives is an effective means to deal with catastrophe risk.Based on the innovation of the risk management tools of China's hull insurance,this paper will discuss the design and pricing of hull insurance options and the application in China.The design of hull insurance option is like that: make several ship design similar age,the same value of the ship composition become standardized subject matter,issued an option for usually one-year period,when the total amount of losses over a certain trigger condition is reached,the insurance company can execute the option contract to hedge risks.The core issue of option theory research is to determine the value of an option.Black-Scholes option pricing formula is the most classic and most widely used option pricing formula,but it can not be directly used for hull insurance pricing options.This is because the Black-Scholes model has an assumptions of continuous change in asset price,but in the context of total loss of the ship as a trigger condition,as underlying asset of the option,the ship's value changes are not continuous and its loss distribution is characterized by a sharp peak and thick tail.In this paper,in order to discuss pricing of hull insurance option,the jump-diffusion model and the generalized hyperbolic Lévy model are used to characterize the changes in the value of ship assets.