@misc{Jakubowski_Andrzej_Two-factor_2005,
 author={Jakubowski, Andrzej},
 copyright={Creative Commons Attribution BY 4.0 license},
 address={Warszawa},
 journal={Raport Badawczy = Research Report},
 howpublished={online},
 year={2005},
 publisher={Instytut Badań Systemowych. Polska Akademia Nauk},
 publisher={Systems Research Institute. Polish Academy of Sciences},
 language={eng},
 abstract={In the paper, a new approach to valuation of bonds under the default risk conditions, based on the concept of the investors' two-factor utility function is proposed. The first factor describes the expected average return from the risky investments, while the second - the worst case return. As a class of risky securities the so-called catastrophe bonds are considered. It is assumed that depending on the structure of the security contract, the investor who buys the bond issued by a local authority governing the risky region - will lose his interest payments and/or the principal value, if a catastrophic event occurs. For the purpose of the valuation procedure, the new notions of the security safety level, the safety index, as welI as a two-rule decision model are successively introduced. The subjective scale as a measure of the degree of individuals' risk aversion is proposed. The idea of objective and subjective risk components is investigated. The methodology proposed is ilIustrated by a computational example.},
 type={Text},
 title={Two-factor utility approach to valuation of catastrophe bonds},
 URL={http://www.rcin.org.pl/Content/139665/PDF/RB-2005-59.pdf},
 keywords={Pricing procedure, Two-factor utility, Expected return, Worst case return, Risk aversion, Subjective scale, Safety level},
}