Research On The Pricing Of China's Flood Catastrophe Bond Based On The Equilibrium Pricing Theory

In recent years,sharp volatility and huge economic losses arising from flood disaster in China have challenged the traditional insurance/reinsurance as an effective method to spread the risk.As one of the most effective catastrophe risk management tool linking insurance market and capital market,the catastrophe bond can be transferred from the risk in insurance market to the capital market,which not only can enhance our industry underwriting capacity,but also enrich the capital market investment structure.Therefore,this thesis choose the flood catastrophe risk as the background,and made a study on flood catastrophe bonds pricing of China based on the Equilibrium Pricing Theory.Firstly,the thesis discussed the related theory of catastrophe bond and focuses on its several common pricing models.Secondly,we analyzed the necessity and feasibility from the introduction of flood disasters in china with the perspective of the economics.Finally,the thesis selected data from 1995 to 2015 which direct economic losses above100 million as the sample data,then fit them to the flood losses and the number of times,and calculate the probability of the corresponding trigger point according to different loss amount with the aid of Monte Carlo.On the basis of the Equilibrium Pricing Theory,the research selected the Vasicek stochastic interest rate model to make a study on zero coupon flooding catastrophe bonds pricing of China.The main research contents are as follows: The direct economic losses of flood catastrophe in China obey lognormal distribution with a mean of 2.980292 and a variance of 1.936796,and the loss frequency obeys Poisson distribution with a parameter of 22.9.The probability of the corresponding trigger point according to different loss amount decreases with the increase of the trigger value.Through pricing flood catastrophe bonds based on the Vasicek interest rate model,found the price is directly proportional to the guaranteed income coefficient,and the average of forward interest rate has a greater impact on the price of flood catastrophe bonds,but the initial interest rate and volatility changes haveno significant effect on bond pricing.This research is expected to provide some references for the introduction of China's flood catastrophe bond and the establishment of its price system.