Catastrophe modeling and simulation


Catastrophe modeling is used to assess catastrophic risk and to improve risk management strategies (Grossi, Kunreuther and Windeler 2005: 27). The modeling of catastrophe risk is a complex process that depends on subjective and objective inputs related to the natural hazard. After the catastrophe model is built usually it is too complex to be evaluated analytically, especially if long term economic consequences are considered. In a simulation a computer is used to evaluate a model numerically, and data are gathered in order to estimate the characteristics of the model (Law and Kelton 1991: 1). Usually catastrophe modeling implicitly incorporates simulations due to the sheer complexity of the system to be analyzed. Catastrophe modeling and simulation have advantages as well as limitations. Some of them are presented below.


Capital Stock Epistemic Uncertainty Aleatory Uncertainty Domestic Credit Catastrophe Modeling 
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  1. 7.
    However, this does not mean that this is true in general, for a comparison of XL-insurance and catastrophe bonds using this model, see Cardenas et al. 2005Google Scholar
  2. 10.
    For a general introduction see for example Moore 1983, Ray 1984 or Hanley and Spash 1993; in the context of government programs see Gramlich 1981 and especially for developing countries Little and Mirrlees 1976; Brent 1998; in the context of natural disaster risk see for example Britton and Oliver 1997 or Mechler 2004aGoogle Scholar
  3. 13.
    Council Regulation (2002) No 2012/2002 of 11 November 2002 establishing the European Union Solidarity Fund.Google Scholar

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