Search

Economic growth modeling is one of the methods a government can use to formulate appropriate economic policies to improve the prosperity of its people. Differential equations and stochastic models play a major role in studying economic growth. This article aims to conduct a literature review on the use of differential equations in relation to stochastics to model economic growth. In addition, this article also discusses the use of differential and stochastic equations in economic growth models in Indonesia. This study involves searching for and selecting articles to obtain a collection of research works relevant to the application of differential and stochastic equations to economic growth models, supported by bibliometric analysis. The results of this literature review show that there is still little research discussing economic growth models using differential equations combined with stochastic models, especially those applied in Indonesia. While the application of these models remains relatively limited, their potential to offer deeper insights into the complex dynamics of economic growth is undeniable. By further developing and refining these models, we can gain a more comprehensive understanding of the factors driving growth and the potential implications of various economic policies. This will ultimately equip policy-makers with a more powerful analytical tool for making informed decisions. [ABSTRACT FROM AUTHOR]

Indonesia suffers significant economic losses from floods, and state budget allocations are often inadequate. Flood bonds provide an alternative funding source, but the pricing framework is complex due to simultaneous flood and financial risk considerations. Therefore, this study aims to model flood bond prices as an alternative flood funding in Indonesia. The model is formulated using the risk-neutral-pricing measure with the stochastic assumption of the force of interest. The claim trigger is represented as maximum rainfall, which is modeled as a continuous-stochastic process with a discrete-time index. Given the varying patterns of rainy and dry seasons, we assume both durations are dynamic. Then, we provide the approximate model solution for the government to estimate bond prices quickly. This estimation shows that the bond's trigger point is proportional to the bond prices. Additionally, bond prices are proportional to the dry season duration and inversely proportional to the rainy season duration. We also show that using a stochastic force of interest yields significant differences from a constant one except for the constant as data average. This study can help the Indonesian government price flood bonds and provide more tools for related meteorological and climatological institutions to calculate the probability of future maximum rainfall. [ABSTRACT FROM AUTHOR]

The national scale of catastrophic losses risk linked to state catastrophe bonds (SCB) is enormous. It can reduce investors' interest in buying them because the capital required and the loss probability are also significant. To overcome this, the SCB can be made on a smaller regional scale, known as a regional catastrophe bond (RCB). Through RCBs, the catastrophic loss risk investors bear becomes smaller, which can increase investors' interest in buying them. Unfortunately, RCB issuance faced a fundamental obstacle, where its complex pricing model needed further study. Therefore, this study aims to model it. The model uniquely involves the inflation rate modeled using the Fisher equation and the nonbinary scheme of coupon and redemption value payments modeled by a compound Poisson process. In addition, the model is applied to Indonesia's catastrophe data, resulting in all provinces' RCB price estimation and the effects of several variables on RCB price. This research can guide the RCB pricing process of the country's regions. The estimated RCB prices can be used by Indonesia's government if RCBs are to be issued one day. Finally, the effects of the inflation rate, catastrophe intensity, and geographical location on RCB prices can guide investors in selecting bond portfolios. [ABSTRACT FROM AUTHOR]