PT  - JOURNAL ARTICLE
AU  - Lars Jaeger
AU  - Ivan Melnychuk
AU  - Samuel Scherling
TI  - Insurance-Linked Securities (ILS): <em>How to Construct a Performance Index</em>
AID  - 10.3905/jai.2011.14.2.036
DP  - 2011 Sep 30
TA  - The Journal of Alternative Investments
PG  - 36--64
VI  - 14
IP  - 2
4099  - https://pm-research.com/content/14/2/36.short
4100  - https://pm-research.com/content/14/2/36.full
AB  - Increasingly, insurance-linked securities (ILS) are being seen as a source of alternative beta. Modern asset pricing theory suggests a general framework in which risk premia can be systematically modeled. From an investor’s point of view, this framework suggests a natural question: Besides being described, analyzed, and modeled, can the ILS risk premium be systematically captured and replicated—analogous to the well-known equity risk premium or the more recently discussed alternative beta risk premia? The authors offer a methodology for the construction of a performance index designed to cost-efficiently capture ILS alternative beta. They discuss some implications of the availability of ILS performance indices for both passive and active management of ILS exposures.TOPICS: Security analysis and valuation, mutual funds/passive investing/indexing, performance measurement