your catastrophe modeling company assures you that there is a 1 in 100 chance

jagguarpaw January 9, 2017 0 Comments

Question: your catastrophe modeling company assures you that

2) (60 points) your catastrophe modeling company assures you that there is a 1 in 100 chance of your offshore oil-drilling platform in the South China Sea being destroyed by a typhoon. You could use a cat bond to cover this $1 billion risk. If the interest on the bond is LIBOR plus 9% and LIGOR is running at 4%, how much will interest payments on the bond cost you each year?