A Study On Catastrophe Risk Bonds Pricing In China

China is a country prone to natural disasters with severe loss. At present, thecatastrophe losses compensation mode in China is mainly limited in unpaid governmentrelief and the ability of insurance industry in this way is very limited. Therefore, theneed for new and effective way to supplement risk transfer is really urgent in China.Since2006, a new tool named catastrophe risk bonds in our country have taken asubstantial step. To transfer risk to finance catastrophe security funds, ChinaDevelopment Bank, China Reinsurance Corporation and China Insurance RegulatoryCommission issued a China-based loss catastrophe risk bonds with the joint effort of theSwiss Reinsurance Company, Munich Reinsurance Company and the BritishLloyd’s.Based on this context, the theory and practice of catastrophe risk bonds conducta comprehensive summary and depth with a strong necessity and reality.In recent years, the research for catastrophe risk bonds developed rapidly aroundthe world. United States and Switzerland are countries which carry out this study earlierthan others and their research for this is really systematic.Early foreign scholarsexplained the economics content of catastrophe risk bonds mainly in the assetsecuritization framework.Meanwhile,catastrophe risk bonds in demand analysis, modeof operation that pricing methods are carried out extensive research.And theseresearches also gradually formed some theories widely recognized in the operatingmode of the bonds and the pricing mechanism, etc. Especially in terms of pricingmechanism, foreign scholars have studied pricing models and methods of catastropherisk bonds from many different angles. However, the current research concerning aboutcatastrophe risk bonds in China is still in the learning stage presentation.Although somestudies focus on the simulation of catastrophe loss data in China with foreign modelsand the suggestions on the pricing and operating mode of catastrophe bonds issued inChina,overall the current domestic research is still relatively fragmented, lack ofconclusions of scientific studies and also takes fewer into account the differences incountries, regional and inter-regional.Therefore, through presenting catastrophe risk bonds in the development of China’scurrent situation,this article will analyze the necessity and feasibility of catastrophe riskbonds issued in the country and accordingly analyze some constraints under the currentcondition of the bond issue suffered catastrophic risk.After the analysis of the current status of catastrophe risk bonds in our country, this article conduct a comprehensiveanalysis of catastrophe risk bond from the trading mechanism, triggering mechanism,catastrophe loss models and pricing models and ultimately determine the use of thecapital asset pricing model as flood catastrophe risk bond pricing model.Finally, throughthe collection of recent flood catastrophe loss data, this article does a loss distributionfunction simulation to the catastrophic data.And then using the capital asset pricingmodel as the flood catastrophe risk bond pricing model and proceeds an empiricalresearch to the pricing of catastrophe risk bonds.