Toward resilience to nuclear accidents: financing nuclear liabilities via catastrophe risk bonds

Bilal Ayyub, Athanasios A. Pantelous, Jia Shao

Research output: Contribution to journalArticleResearchpeer-review

2 Citations (Scopus)

Abstract

In light of the 2011 Fukushima disaster, recent discussion has focused on finding the best nuclear storage options, maximizing the oversight power of global institutions, and strengthening safety measures. In addition to these, the development of dependable liability coverage that can be tapped in an emergency is also needed and should be considered thoughtfully. To succeed, financing is essential using special-purpose instruments from the global bond market, which is as big as US$175 trillion. Thus, in this paper, for the first time, a two-coverage-type trigger nuclear catastrophe (N-CAT) risk bond for potentially supplementing the covering of U.S. commercial nuclear power plants (NPPs) beyond the coverage per the Price Anderson Act as amended, and potentially other plants are proposed and designed worldwide. The N-CAT peril is categorized by three risk layers: incident, accident, and major accident. The pricing formula is derived by using a semi- Markovian dependence structure in continuous time. A numerical application illustrates the main findings of the paper.

Original languageEnglish
Article number041005
Number of pages9
JournalASCE-ASME Journal of Risk and Uncertainty in Engineering Systems, Part B: Mechanical Engineering
Volume2
Issue number4
DOIs
Publication statusPublished - Dec 2016
Externally publishedYes

Keywords

  • Catastrophe risk bonds
  • Global market
  • Liability
  • Nuclear power risk
  • Semi-Markov environment
  • Specialpurpose vehicle
  • Two-coverage-type trigger

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