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COMMENTARY: Catastrophe modelling and metaphors in financial markets: COMMENTARY ON "perils of catastrophe bonds" by Etzion, Kypraios, and Forgues

Tsanakas, A. ORCID: 0000-0003-4552-5532 and Cabantous, L. ORCID: 0000-0003-3533-1208 (2020). COMMENTARY: Catastrophe modelling and metaphors in financial markets: COMMENTARY ON "perils of catastrophe bonds" by Etzion, Kypraios, and Forgues. Academy of Management Discoveries, doi: 10.5465/amd.2020.0006

Abstract

We welcome Etzion et al.’s (2019) effort to critically assess the role of cat models in insurance markets, by combining a sociology of finance lens with statistical analysis. Nonetheless, we believe there are two flaws in their analysis. First, their interpretation of the model-as-engine metaphor, as well as the way they test for this metaphor, is questionable, in part because it is not clear what form of performativity (generic, effective, Barnesian?) is to be expected in the case of cat models and what constitute rigorous tests for these various forms of performativity. Second, we disagree with the broad conclusion drawn by the authors from the statistical analysis, in particular that the predictive performance of cat models is “not demonstrably better than guesswork” and hence, that such models are not (like) cameras. Overall, we find it hard to see how the two main points discussed by the authors – namely that “catastrophe bonds do not lend themselves to analysis through conventional sociological theories of financial markets” (p. 1) and that cat bonds are not appropriate risk transfer instruments to tackle sustainable development goals – are proven through their discussion of cat models via the model-as-engine and model-as-camera metaphors.

Publication Type: Article
Subjects: H Social Sciences > HG Finance
Departments: Business School > Management
Date Deposited: 01 May 2020 14:40
URI: https://openaccess.city.ac.uk/id/eprint/24096
[img] Text - Accepted Version
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