Research On Catastrophe Risk Bonds Apply To Agricultural Risk Management

Under the tendency of frequent extreme natural disaster, how to cope with the loss of agricultural industry caused by agricultural catastrophe risk has become a major issue to be addressed. Guangdong province is the main planting province of rice, vegetable and sugarcane in our country. Because of its special geographical position, lots of natural disaster, like typhoon, drought and flood happened often, which result in a big amount of loss of Guangdong province’s agricultural industry. At present, the method to make up the loss caused by natural disaster included the government relief funds, agricultural insurance and reinsurance. However, when these traditional relief method facing with serious agricultural disaster, compared to the bath caused by disaster, the fund they raised was negligible amounts. Therefore, the issue to expand the ability of raising capital has become the pivotal issue for agricultural catastrophe risk management now.Agricultural catastrophe risk bond is one of the innovative financial instruments, which linked agricultural insurance market and the capital market. It broke through the limitation of insurance and reinsurance market, and transferred the agricultural catastrophe risk accepted by insurance market to the whole capital market. It not only provided the insured a dependable capital source, but also promoted the development of capital market partly. Therefore, researching the agricultural catastrophe bonds in theory and practice has the vital significance.This paper based on the situation of Guangdong province’s agricultural industry, discussing the value of agricultural catastrophe risk bonds for Guangdong province’s agricultural catastrophe risk management. At first, the paper analyzed the situation of Guangdong province’s agricultural loss caused by natural disaster and the traditional method for dealing with the agricultural disaster. It researched the need for Guangdong province to issue agricultural catastrophe risk bonds. And then, it analyzed the operational mechanism of agricultural catastrophe risk bonds, including the program of money flow, maturity structure and trigger mechanism. At last, it makes an empirical study for Guangdong province’s agricultural catastrophe risk bonds. This paper discussed the extreme value theory and its advantage to analyze the heavy-tailed distribution of catastrophe. Evaluating agricultural catastrophe loss by using Monte Carlo Simulation and POT model, based on crop losing data of typhoon in Guangdong province. And then, designing a comparative simple one-year zero coupon agricultural catastrophe risk bond, and calculating the different prices under the different parameter values.