Why is the historical data approach appropriate for pricing a weather derivatives contract and a CAT bond?

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Options Futures And Other Derivatives

ISBN: 978-8120331693

6th Edition

Authors: Buss/redburn/guo

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Question Posted: Sep 19, 2024 06:02 AM

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Why is the historical data approach appropriate for pricing a weather derivatives contract and a CAT bond? AppendixLO1
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Suppose that in a risk-neutral world the Vasicek parameters are a=0.1, b = 0.03, and =0.01. What is the price of a 5-year zero-coupon bond with a principal of $1 when the short rate is 2%.
Suppose that in a risk-neutral world the Vasicek parameters are a=0.1, b = 0.03, and =0.01. What is the price of a 5-year zero-coupon bond with a principal of $1 when the short rate is 2%.

Why is the historical data approach appropriate for pricing a weather derivatives contract and a CAT bond?

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