Catastrophe Bond Pricing Study

Catastrophe insurance risk securitization is a financial insurance innvation which is able to spread catastrophe risks on the internatinal plane. Proceed from the structure of catastrophe bonds, by analyzing merits and demerits of catastrophe bonds and feasibility of bonds issuing, the paper represents adequately why can catastrophe bonds develop better than other products of the securitization of catastrophe risks in the financial markets. However, Issue of bonds which is based on imperfect market have a problem which is hard to set a price.The paper introduces and summarizes two aspects of the study of pricing which are models on imperfect market and perfect market systematically, then it focuses on the theory of Equilibrium Asset Pricing and Monte Carlo Analysis. Refering to the basis risks and credit risks which have an effect on the price of catastrophe bonds, the paper adds moral hazard which can not be ignored in catastrophe bonds-pricing to Monte Carlo simulation, finally it creates a new model.The paper building a model with respect to loss distribution of earthquake in our country in the last paragraph, using direct economic lost data from 1969 to 2004 which is above 99 million yuan. For the choice of distribution function, It is remarkable that it adopts straightforward and easily operational method in Eviews in the process of model building, moreover, match of the model is good and reliable.After this, the paper analyzes catastrophe bonds-pricing using CAPM and binomial distribution-model, thus, it confirms that catastrophe bonds is on imperfect market once more from the standpoint of demonstration, at last, it uses binomial distribution-model in which have been included moral element to set a price for catastrophe bonds. so far, The paper builds earthquake-catastrophe bonds, accomplishs the decision of pricing structure in addition.