The Study Of Catastrophe Bonds Pricing

China is a typical catastrophe-prone country.There are huge economic losses due to catastrophes and casualties each year.But China has not established catastrophe insurance system.Catastrophe bond is a mature way to spread catastrophic risk abroad.It can transfer the catastrophe risk from the insurance market to the capital market.So China is urgent to develop the catastrophe bonds.The pricing of catastrophe bonds is the core of the development of catastrophe bonds.Therefore,the study of catastrophe bonds'pricing has important theoretical and practical significance.This text is a study in three parts.In this paper,an overview of the catastrophe risk bond was been done firstly.It describes the content of catastrophic risk bond. Compared with the traditional reinsurance,the catastrophe bond has some characteristics.For example,the catastrophe bond can effectively reduce the credit risk and moral hazard.Then this paper analysis the strength and weaknesses of the catastrophe bond.The catastrophe bond can not only play the use of re-insurance products to protect the role of specific catastrophic risk.but also it is with full autonomy in the product design.It can improve the financial indicators and financial structure of insurance companies.This paper classify the catastrophe bond according to different criteria.This criteria include the degree of risk and trigger conditions of the catastrophe bond,and the type and the subject of catastrophe insurance. Then this paper analysised the significance of catastrophe bonds.Catastrophe bond increased the underwriting capacity and risk control ability of insurance and reinsurance company,it also improved the efficiency of capital markets.This text analysised the catastrophe bonds'pricing models in the second part.This paper analysised the equilibrium pricing model,the arbitrage-free pricing model,the empirical model and the discounted cash flow model.Then conducted a detailed analysis and argument for each model.The empirical model can be divided into two-factor model,Christofides model and LFC model.In the third part of this paper an empirical study was conducted on the catastrophe bond. First,this text select nearly four decades of China's major earthquake loss data as a sample of empirical research.In order to ensure the comparability of the sample data,and to avoid inflation and price indices and other factors affect the structure of the study,this paper selected annual CPI index to adjust the earthquake losses.So this ensures that data have a certain degree of representativeness.Then sort the amount of loss in the sample data from small to large,then group them reasonably and calculate for each interval of their occurrence frequency,cumulative frequency and frequency density.Then according to the calculated cumulative frequency to establish the empirical distribution function.Second,we fit the loss distribution based on the sample data.First calculate the sample's empirical residual expectation,make the corresponding scatter plot and calculate the amount of loss in the sample statistics.Then analysis the earthquake loss data based on the scatter plot and statistic data.We find that the log-normal distribution is the best model.It can make the best fitting results.In order to ensure the accuracy of the results of empirical studies,we apply another 5 common distribution function model to fit the sample data,by comparing we find that the log-normal distribution has the best fitting results.We get the same analysis result with the method of by analysising the scatter plot and statistic data.So we use the log-normal distribution as the fitting function of China's earthquake loss.This text choose the Poisson distribution function to fit the amount of earthquake loss frequency.Third,this paper combined the earthquake loss distribution with the bond interest rate,and design a catastrophe bond model that is suite to China's catastrophe.Then determine the catastrophe bond yields based on the bonds issued in 2009,and selecte one-year period and three-year period treasury bonds to make the interest rate assumption.Finally,select the trigger point for catastrophe bond according to the loss of the earthquake frequency,and construct the catastrophe bond model that suites to China's catastrophic situation.