Clarke, DanielMahul, OlivierPoulter, RichardTeh, Tse Ling2016-07-072016-07-072016-06https://hdl.handle.net/10986/24637This paper proposes a framework for ex ante evaluation of sovereign disaster risk finance instruments available to governments for funding disaster losses. The framework can be used by governments to help choose between different financial instruments, or between different combinations of instruments, to achieve appropriate and financially efficient strategies to fund disaster losses, taking into account the risk of disasters, economic conditions, and political constraints. The paper discusses the framework in the context of a hypothetical country, with parameters selected to represent a disaster-prone small island state. The paper shows how a mix of instruments can be chosen to minimize the economic opportunity cost given the underlying disaster risk faced and prevailing economic and financial conditions.en-USCC BY 3.0 IGOCONTINGENT LIABILITIESLINE OF CREDITHOLDINGLIABILITYDEVELOPING COUNTRIESFINANCIAL MANAGEMENTRISK PROFILEVALUATIONINTERESTRATE OF RETURNCLAIM PAYMENTRISK NEUTRALCONTINGENT LIABILITYMORAL HAZARDINSURANCE PRODUCTINTEREST RATEOPTIONEXCHANGESTRATEGIESSERVICESFINANCIAL CRISESDEVELOPING COUNTRIESREPAYMENTSPUBLIC SERVICESPORTFOLIOBONDSMARKET INSTRUMENTSLOANDEBT REPAYMENTSPRICINGPROJECTSRESERVE FUNDGOVERNMENT ACCOUNTSINTEREST RATECLAIM PAYMENTSSAVINGRESERVEINTERNATIONAL BANKINSTRUMENTSSAFETY NETSBUDGETPRESENT VALUESAVINGSCURRENCYNATURAL DISASTERMORAL HAZARDDISBURSEMENTINSURANCE MARKETSINSURANCE PRODUCTFINANCESFIXED COSTSINTEREST RATESINSURANCE PRODUCTSNATURAL DISASTERSRESERVE FUNDFINANCIAL INSTITUTIONSMARKETSDEBTINTERNATIONAL DEVELOPMENTFINANCIAL CRISESCATASTROPHE BONDSINTEREST RATESRETURNINTERNATIONAL DEVELOPMENTLENDERSLIQUID MONEYPUBLIC SERVICESLOANSRESERVESGOVERNMENT FINANCINGFINANCEBANK POLICYINFRASTRUCTURECONTINGENT LIABILITYBANKSEXPENDITURETRANSACTIONSSOVEREIGN DEBTRISK NEUTRALOPPORTUNITY COSTGOVERNMENT BUDGETOPPORTUNITY COSTSFINANCIAL TRANSACTIONSFINANCIAL INSTRUMENTMINISTRIES OF FINANCEINSURANCE PRODUCTSSOVEREIGN RISKFUTUREVALUEPRIVATE FINANCIAL SECTORCLAIM PAYMENTBANKRETURNSFINANCIAL INSTRUMENTSCREDITBUDGETSCOLLATERALIZATIONPUBLIC BUDGETOPPORTUNITY COSTGOVERNMENT EXPENDITURESAFETY NETPRICE RISKFINANCIAL INSTRUMENTSFINANCIAL INSTRUMENTREPAYMENTEXPENDITURESCATASTROPHE BONDSNATURAL DISASTERFISCAL YEAROPPORTUNITY COSTSBANK POLICYINSURANCE PREMIUMMARKETDEFAULTLOCAL CURRENCYRISK PROFILEFINANCIAL INSTITUTIONSLEVYINSURANCEINSURANCE PREMIUMSCONTINGENT DEBTGOVERNMENT DEBTPRICE RISKINVESTMENTRISKBONDSAFETY NETSINDIRECT COSTMINISTRIES OF FINANCEFINANCIAL MARKETSDEBT REPAYMENTSINSTITUTIONAL DEVELOPMENTINSTITUTIONAL DEVELOPMENTMONEY MARKETMONEY MARKET INSTRUMENTSBORROWINGINVESTMENTSRISK MANAGEMENTLENDINGCONTINGENT LIABILITIESSWAPSINSURANCE COMPANIESINSTRUMENTLINE OF CREDITGOVERNMENTSLIABILITIESARREARSGOVERNMENT ACCOUNTSBOND PREMIUMFINANCIAL TRANSACTIONSECONOMIC CONDITIONSNATURAL DISASTERSINVESTINGWorking PaperWorld Bank10.1596/1813-9450-7721