Premium for Coverage for Excess COVID-19 Infections

ABSTRACT

Many of the sectors in the economy were negatively affected, particularly insurance sector with the appearance of COVID-19. With the support of governments or reinsurers through the payment of a premium, insurance companies could receive a contingent resource in the face of excess infections caused by the pandemic. This paper calculates the premium to cover the excess affected population with a financial options model with a diffusion process without and with Poisson jumps and the Susceptible-Infected-Recovered (SIR) epidemiological model (this estimation is original). The obtained system is approximated with the Monte Carlo simulation method. The results show that there are important differences in the option premiums when Poisson jumps are included. Lastly, it is highlighted that the premium depends on the behavior trajectory of contagions and strike contagion value (K). This work has a limitation when applied to very particular cases, but a calibration of the parameters with more real information could be done in future research. © 2023 Russell Sage Foundation. Lewis-McCoy, R. L'Heureux, Natasha Warikoo, Stephen A. Matthews, and Nadirah Farah Foley. 2023.