A team of lecturers from Universitas Padjadjaran, together with collaborators from Malaysia and other Indonesian universities, has successfully published their latest research in the International Journal of Disaster Risk Reduction. The study introduces a multiple-trigger Flood Bond (FB) pricing model, using aggregate losses and the maximum number of submerged houses as trigger indices.
The model applies stochastic processes, a risk-neutral pricing measure, and Monte Carlo simulations to provide a more accurate estimation of FB prices. Calibrated with Indonesia’s flood data, the findings reveal important insights: longer bond terms, higher annual flood intensity, and stronger correlations among disaster triggers are associated with lower FB prices. In contrast, correlations between annual interest rates and FB prices are found to be positive.
This research is the result of cross-country and interdisciplinary collaboration, involving scholars from:
- Universitas Padjadjaran (Indonesia)
- Universiti Sultan Zainal Abidin (Malaysia)
- Universitas Pasundan (Indonesia)
- Universitas Siliwangi (Indonesia)
Beyond academic contribution, the model also has strong practical implications. Agencies such as Indonesia’s Meteorology, Climatology, and Geophysics Agency (BMKG) or disaster management institutions can use the model to measure flood severity, while FB issuers may apply it to set fairer bond prices that better reflect actual disaster risks.
This innovation also supports the achievement of the United Nations Sustainable Development Goals (SDGs):
- SDG 11 (Sustainable Cities and Communities): strengthening resilience of urban areas against flood risk.
- SDG 13 (Climate Action): promoting climate change adaptation strategies through innovative financial instruments.
By integrating financial modeling with disaster risk management, this study provides a new approach to building disaster-resilient financial systems and enhancing flood mitigation strategies both in Indonesia and globally.
Source: https://www.scopus.com/record/display.url?eid=2-s2.0-85213224308&origin=resultslist
17/Stat/2025
