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Unpacking Basis Risk

When catastrophe strikes, it is not unusual for the insurance payout to differ from the policyholder’s expectation. The possibility of such a discrepancy is referred to as “basis risk”. The term, however, can be ill-defined and easily misunderstood. Therein lies the problem, without definition it is easy for the basis risk associated with a structure to remain unidentified and unquantified...

4 days ago