Catastrophe Bond Pricing Based On The Improved LFC Model Research

Since the 1970 s,the magnitude and extent of the catastrophe have increased significantly.Because of the capital constraints of the insurance industry,it is difficult to fully resist the strong operational risk brought by the catastrophe.Since the capital market can share huge insurance risks in a cheaper and more efficient way,a new tool for the insurer to pass on the risk--catastrophe risk bond comes into being.Catastrophe risk bond is a typical topic in financial innovation activities in the field of finance and insurance,a fundamental financial integration in risk management and insurance,and is worth thoroughly investigation with use of the knowledge in finance and insurance.Firstly,this thesis introduces the catastrophe risk and traditional risk management tool,reinsurance,and introduces the basic theoretical framework of catastrophe risk securitization through the shortage of reinsurance.After summarizing the existing catastrophe risk securitization tools,the advantages of catastrophe risk bonds are discussed.Then the LFC model is proposed,which is the empirical model summarized by Morton Lane,President of Lane Financial,based on empirical observation of the market price of catastrophe bond market.The traditional LFC model is fully explained and analyzed,and its practicability and applicability are recognized.At the end of the thesis based on the traditional model of LFC,and with the use of catastrophe risk bond market transaction data from recent years,we carry out time series analysis obtain several improved LFC pricing model,and examine their capability of price forecasting and their feasibility in real applications.