The Analysis Of Catastrophic Risk Bond Strategies And Model Construction

In the traditional sense, the risk of catastrophic risk is usually transferred to the reinsurance company to achieve the purpose of hedging. As a new way, catastrophe risk bond directly transfers the risk to the capital market, the cash of bondholders'flows from the bonds, which associates with particular hazard events, such as earthquakes, hurricanes or floods. To make sure the price of catastrophe risk bond, this particular bond is much more complex than the regular bonds. In the catastrophe bond market, the market is incomplete; therefore, it is not applicable to simply use the method of replication and portfolio. In this paper, for the pricing of catastrophe bonds we developed a new method to the pricing of catastrophe bonds from the relevant theory, used the non-life insurance actuarial technical to analyze the distribution and frequency of earthquake losses in China, and used the CAPM and bond pricing principles to calculate the earthquake bond profit and price on this basis. So we made a preliminary design for bonds earthquake.Firstly, we analyzed the current characteristics of catastrophic risk and the rapidly increasing trend, discussed the traditional reinsurance dealing with the lack of catastrophic risk and the development of motivation of Catastrophe Risk Securitization, and made a reviewed research for the mode of operation theory of catastrophic risk bonds.Secondly, based on the theory of the Cox & Pedersen equilibrium pricing model, we deduced the bond pricing model of catastrophic risk. That is, we made a binary tree of actuarial analysis with two simulated cash flow for the pricing mechanism of catastrophic risk bonds: single-period cash flow, and two times cash flow.Again, through the sample data of the seismic analysis, we established the distribution function of relevant experience, fitted loss distributions, then fitted the number of occurrences of earthquakes, and lastly determined the different types of earthquake catastrophe bond coupon rate bond according to CAPM.Finally, on the basis of tremors conforming to the Poisson distribution, we introduced the concept of the distance between the of risk models and the compound Poisson model and used the compound Poisson distribution to fit the catastrophe risk model.