Search for: [Abstract = "A new approach to valuation of bonds under the default risk conditions, based on the concept of the investors' two\-factor utility function is proposed. The first factor describes the expected average return from the risky investments, while the second – the worst case return. As a class of risky securities the so\-called catastrophe bonds are considered. It is assumed that depending on the structure of the security contract, the invesor who buys the bond issued by a local authority governing the risky region – will lose his interest payments and\/or the principal value, if a catastrophic event occurs. For the purpose of the valuation procedure, the new notions of the security safety level, the safety index, as well as two\-rule decision model are successively introduced. The subjective scale as a measure of the degree of individuals' risk aversion is proposed. The idea of objective and subjective risk components is investigated. The methodology proposed is illustrated by a computational example."]

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