On the Insurance of Environmental Risks: Modeling and Pricing with Mean‑Reverting Regime‑Switching Lévy Processes
This article presents modeling approaches—both structural and reduced-form—to improve the understanding and prediction of environmental risks. It enhances existing models for better risk assessment and pricing, particularly in infrastructure and land use contexts. Potential extensions include advanced temperature and rainfall modeling, such as stochastic mean-reversion and regime-switching Lévy processes. The paper also suggests future research comparing insurance pricing methods and exploring parametric insurance mechanisms, where payouts are triggered by measurable parameters rather than actual losses. These developments aim to refine environmental risk management and insurance strategies.