Pricing Of Catastrophic Risk Securities

China is one of the countries that most severely affected by catastrophic disasters in the world.As a typical catastrophic disaster,typhoon has a major impact on China,especially in the Guangdong region.The typhoon disaster has caused huge losses to Guangdong Province every year.This is extremely detrimental to the economic development of Guangdong Province and urgently requires an effective way to spread the risks.At present,the loss caused by typhoons like catastrophic catastrophe in our country depends mainly on government aid and social donations,and the proportion of catastrophe risk dispersed by insurance and reinsurance is still relatively low.Therefore,there is an urgent need for a new and effective risk transfer method to disperse the catastrophe risk.Securitization of Catastrophe Risk refers to the process of transferring insurance cash flow into securities with strong liquidity through securitization,raising capital from the capital market to cope with the catastrophe risk and at the same time transferring the insurance risk to the capital market.The method can effectively disperse the catastrophe risk,improve the underwriting capability of the insurance company,and solve the problem of insufficient insurance capacity in the traditional insurance market.Common catastrophe risk securitization products include cat bonds,catastrophe futures,catastrophe options and catastrophe swaps,among which the cat bonds are the most typical and most successful.Therefore,it is feasible in our country to transfer and disperse catastrophe risk by issuing catastrophe bonds.The key to successful catastrophe bond issuance is accurate pricing,and the current domestic research on the pricing of catastrophe bonds is still in a preliminary stage of discussion,and no unified standards have been formed.Therefore,this paper studies the pricing of typhoon bonds based on the typhoon loss data of Guangdong Province in order to provide some ideas for the pricing of catastrophe bonds.This paper first briefly described the definition and characteristics of catastrophe risk and introduced the main catastrophe risk securitization products.Among them,catastrophe bonds are the most successful catastrophe risk securitization products and are more likely to be issued first in China.Then,we further elaborate the catastrophe bonds from three aspects: the operation mode,the triggering mechanism and the pricing research.Afterwards,taking the typhoon data of Guangdong Province as the research object,the typhoon loss amount distribution and the typhoon loss frequency distribution were fitted respectively.It was found that the distribution of loss amount obeys the lognormal distribution,and the loss frequency distribution obeys the Poisson distribution.Combine the two to obtain the typhoon total loss distribution subject to compound Poisson distribution,and use the translation gamma approximation method to find the distribution parameters,and then combine the CAPM model,the interest rate binomial distribution model,and the Wang two-factor model respectively to price the typhoon bond.Finally,it summarizes the pricing results obtained by the three pricing models and puts forward policy suggestions.