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Avoiding Disasters with Catastrophe Bonds?

The hedge fund strategy that never was one

Nicolas Rabener
10 min read
21 Jun 2021

SUMMARY

  • Catastrophe bonds offered exceptionally high risk-adjusted returns since 2005
  • These were uncorrelated to equities, making cat bonds attractive for diversification
  • However, cat bonds might have underpriced risk historically, raising concerns going forward

INTRODUCTION

The global pandemic continues to be a catastrophe for our civilization. Compounding its effect: Few were insured against it. Sure, Hollywood has churned out plenty of movies about contagious disease outbreaks over the years, but that is where the topic seemed to belong — in the realm of entertainment, not in our neighborhoods.

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