The Pricing Of Catastrophe Bonds

Catastrophe bonds are the most typical specialized securities that increase the ability of insurers to provide insurance protection while transferring the risk to investors around the world under the sharply decrease of the capacity of the global catastrophe insurance. China is one of the world’s countries suffering from the most serious natural disaster losses. And the huge economic losses has brought a bad influence to people’s lives and healthy development of the national economy, and also increase tremendous pressure to the state’s financial. But China has still not fund reasonable catastrophic risk resolving system. So how to price the catastrophe bonds correctly is the hardest project for the researchers. And it’s meaningful for the reasonable pricing for catastrophe bonds.Based on the analysis of catastrophe bond pricing model written by domestic and foreign researchers, this paper employs two classic pricing mechanisms, and assumes that the catastrophe risk index follows a CEV process with Poisson jumps which can explain the heavy tail features and the volatility smile features of the catastrophe insurance market well and the. Then in the case of that the interest rate obeys a CIR model, this paper uses no-arbitrage pricing method to obtain the price of catastrophe bonds. At last the article has obtained analytical solutions under special circumstance for the two pricing mechanism respectively and also got numerical solution for the general situation, along with a brief analysis of the factors affecting these two catastrophe bond prices.The first chapter introduces the background of the pricing model of the cat bonds and proposes the basic problem of existing research.The second chapter introduces some basic theories and prior knowledge.Chapter Ⅲ mainly introduces the design and pricing of catastrophe bonds. This chapter cites two classic pricing mechanisms, and assumes that the catastrophe risk index follows a CEV process with Poisson jumps which can explain the heavy tail features of the catastrophe insurance market well. Then in the case of that the interest rate obeys a CIR model, this paper uses no-arbitrage pricing method to obtain the price of catastrophe bonds. At last the article has obtained analytical solutions under special circumstance for the two pricing mechanism respectively and also got numerical solution for the general situation, along with a brief analysis of the factors affecting these two catastrophe bond prices.Chapter IV is conclusion and outlook. This chapter summarizes some of the ideas and conclusions in the full text, and put forward their own way forward in the future for the catastrophe bond pricing ideas.