The Pricing And Design Of Catastrophe Bond

The frequency of catastrophe occurrence in the world increased year byyear.Only in2011,the catastrophe caused direct economic losses up to435billiondollars,the insurance agencies claimed more than100billion dollars.With theincreasing catastrophe ivents and limited funds,the insurance agencies begin to trytransfering catastrophe risk to the capital market.Catastrophe risk securitization products, including catastropheoptions,catastrophe swaps, catastrophe futures and catastrophe bonds.Besidesthese,the market performance of catastrophe bonds is the best.Therefore,we shouldconsider the possibility of the implementation of catastrophe bonds in our country.Firstly,we introduce the design and operation of catastrophe bonds.Then,wedevide the pricing models into two categories--financial theoretical model and risktheoretical model.Next,we try to design a4-year typhoon bond.This paper selects the typhoondatas which caused direct economic losses more than100million yuan in Chinabetween1989-2011as a sample. We find that the datas follow a lognormaldistribution. On the basis of the loss distribution model fitting,we use cash flowanalysis to study the pricing of catastrophe bonds.In order to achieve better effects,wetake the risk added value and moral hazard into consideration.On the basis of cashflow pricing,we add the Wang transformation and moral factor,thus we establish anew catastrophe bond pricing system.In the end,combining the actual situation in our country,we explore the necessityand feasibility of issuing catastrophe bonds in China.Moreover,we give solutions to the problemsthat may occur in the course of practice.