Designing Oil Risk Securities Based on Risk Transferring Insurance-Linked Securities

Abstract

Adopting appropriate and efficient tools for risk management is a core element in managing a variety of risks. Insurance-Linked Securities are modern financial-insurance tools which have been utilized widely by the insurers to cover risks especially catastrophe related risks and massive risks. Moreover, these securities are financial tools that occur in life insurance securitizations. Heretofore, the risk securitizations have been inside the insurance industry and the operational models for issuing such securities on oil and gas projects' risks have not been presented to the literature yet. Considering the importance of oil and gas sector and also the high diversity and variety of oil and gas projects' risks and in order to diversify the risk management tools in the hands of oil and insurance industries, this paper has tried to develop a model for issuing oil risk securities based on Simon's theory of bounded rationality (1996). This model is consistent with conditions in Iranian oil and insurance industries and the Islamic juridical (Shari'ah) considerations for the corresponding investments.

Keywords

• oil risks
• insurance-linked securities
• risk management
• oil’s risks securities