Earthquake Index Insurance Based On Extreme Value Theory

Earthquake natural disaster is one of the most serious catastrophic disasters in China.The traditional earthquake insurance has been unable to satisfy the development of the current economic and social.In the international insurance market,the application and development of earthquake index insurance have greatly alleviated the crisis faced by the traditional earthquake insurance industry,and provided valuable reference for the development of earthquake index insurance in China.The primary objective of this paper is to design a suitable earthquake index insurance product according to the earthquake magnitude,and to discuss how to reduce the basis risk of earthquake index insurance.This paper firstly expounds the related concepts of index insurance,introduces the successful cases of the application of earthquake index insurance in the world,analyzes the enlightenment of these cases to the development of earthquake index insurance,and discusses the adaptability of the development of earthquake index insurance in China.Then it emphatically introduces the theoretical knowledge of extreme value theory and loss parameter estimation,which is ready for the following empirical analysis.In the empirical analysis,this paper collects earthquake disaster data from 1990 to 2015 in Yunnan Province.the actuarial models of earthquake index has been constructed.The Poisson distribution is determined by comparing the fitting effects of different frequencies of earthquake losses in the earthquake loss number model.it is found that the generalized Pareto distribution has better fitting effect by comparing different distribution models of direct economic loss.Gamma distribution,Weibull distribution,lognormal distribution and generalized Pareto distribution are used to fit the magnitude,and generalized Pareto distribution is found to have the best fitting effect on the earthquake magnitude loss model.Through the study of the approximate function relationship between magnitude and economic loss,based on which the magnitude index is divided into different sections,which is calculated the pure premium of different categories of magnitude index.Finally,this paper proposes to implement different categories of earthquake magnitude index in different geographical and economic regions to achieve the effect of reducing the basis risk.