Earthquake Catastrophe Bond Design And Pricing In China Based On POT Model

China is a country with frequent natural disasters.The economic losses caused by catastrophe seriously affect people's production and life and the development of the national economy.China urgently needs to establish a catastrophe risk decentralization mechanism and change the catastrophe loss compensation to rely too much on the status quo of government assistance.The main way to prevent catastrophe risk should be catastrophe insurance,but China is currently facing the problem of lack of catastrophe insurance supply.This is because the catastrophe risk has a small probability and the loss is non-insurable.The insurance company is powerless.Take the risk of catastrophe alone.Therefore,in order to transfer and disperse the catastrophe risk of the insurance market,it is necessary to transfer the risk to the capital market with greater capacity through catastrophe risk securitization tools such as catastrophe bonds,and attract capital market investors to jointly disperse the catastrophe risk,thereby making the risk From non-guarantee to insurable,improve China's catastrophe risk management.The pricing of catastrophe bonds is the key to achieving catastrophe risk securitization,while the catastrophe bond pricing research includes the measurement of catastrophe risk,the classification of catastrophe bond risk allocation boundaries,bond stratification and pricing.The lack of thick tail fitting in the catastrophe loss distribution of the existing research directly affects the accuracy of bond pricing;the catastrophe bond risk allocation boundary is the basis of bond pricing,and the current research on risk allocation only stays in the theoretical framework.There is no quantitative method for dividing risk;the existing bond pricing research lacks consideration of investor demand,and the single pricing structure has limitations in market practice and cannot adapt to the multi-level investment demand of China's capital market.This paper aims at the design and pricing of catastrophe bonds for earthquake disasters in China,and improves the above three research difficulties.On the issue of loss estimation,the POT model of extreme value theory is used to fit the tail risk of the direct economic loss distribution caused by the earthquake.The distribution of the thick tail loss of the earthquake catastrophe in China is obtained,which improves the accuracy of earthquake catastrophe loss assessment,and provides a basis for subsequent seismic loss risk assessment research and bond pricing research.On the issue of the risk allocation of earthquake loss,this paper designs the seismic risk allocation mechanism with China's national conditions according to the imperfect development and the low degree of marketization of China's reinsurance industry.Based on the estimation results of the tail portion of the seismic loss,VaR method is used to provide a quantitative method for the division of earthquake disaster losses,thus stratifying the catastrophe losses,and obtaining the risk loss range of the capital market allocation,which improves the lack of risk apportionment of the existing earthquake catastrophe bond pricing research,and also improves the rationality of catastrophe bond design.In the aspect of earthquake catastrophe bond pricing,the stratified pricing model of China's earthquake catastrophe bonds is constructed.According to the different risk preferences of China's capital market,the bonds are layered to distinguish the bond risk level and adjust the principal recovery.The tranches make the bond match investors' demand,and the different bond prices are given,which enhances the adaptability of the product to the investment of different risk preference investors and the investment demand.