Mitigating Financial Impact of Pandemics: A Collaborative Public

46 Pages Posted: 1 Jun 2023 Last revised: 4 Jun 2023

Renmin University of China - School of Finance

Department of Economics and Finance, Gordon S. Lang School of Business and Economics, University of Guelph

Tsinghua University - Tsinghua University School of Economics and Management

Arizona State University (ASU) - School of Mathematical and Statistical Sciences

Date Written: May 29, 2023

This paper introduces a novel pandemic bond, a result of public-private sector partnership, designed to mitigate the economic impact of pandemics on life insurers and other institutions vulnerable to pandemic risks. The bond, issued by the private sector, bases its payoff on pandemic data released by public institutions, such as the World Health Organization. We propose a new stochastic Susceptible-Infected-Recovered-Deceased (SIRD) model to estimate pandemic transmission processes, applying it to US Covid-19 data and simulating future pandemic scenarios. Our numerical analyses indicate that the stochastic SIRD model reliably estimates excess death rates and that the proposed pandemic bond serves as a valuable instrument for managing the financial consequences of pandemics on life insurers.

Keywords: Public-Private Partnership, SIRD Model, Pandemic Risk Management, Catastrophe Bond, COVID-19

JEL Classification: G13, G22, G3

Suggested Citation: Suggested Citation

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