Research On Catastrophe Bond Pricing

In recent years,due to the frequent occurrence of natural disasters,the amount of insurance losses has been rising,and the risk of underwriting in the insurance market has been increasing.Insurance companies are always seeking effective measures to transfer catastrophe risks.Catastrophic risk(CAT)bonds can transfer insurance market risk to a huge capital market,greatly reducing the underwriting risk of insurance companies.As an important financial tool for catastrophe relief,CAT bonds have been widely used at abroad.However,in China,the research on CAT bonds is still at the age of theoretical pricing and empirical analysis and there is no unified pricing model.Therefore,firstly,based on the existing pricing framework in foreign countries,this paper uses the equilibrium pricing model to give a pricing model of catastrophe bonds including insurance risk and financial risk at zero time under China's circumstances to meet the investors' need for risk premiums.Then,it conducts the empirical analysis combined with China's seismic data.Secondly,this paper gives a special model which contains only includes the insurance risk model attenuated from two types of risk model.And then,the paper gives a empirical analysis based on the Chinese earthquake bonds.The empirical analysis is divided into two categories,one is using the parameter type trigger as the trigger condition;the other is using the industry loss trigger as the trigger condition.At the same time,considering the circumstance that may lead to the bankruptcy of the insurance company,this paper mainly studies the probability of occurrence of large claims--the tail of the catastrophe in the empirical analysis of catastrophe bond pricing.The earthquake magnitude is selected as the parameter trigger in this paper.It collects all the data of earthquake magnitudes from 1973 to 2017 in China and then uses the extreme value theory to fit the tail part of the earthquake magnitude.And we find out that the tail of earthquake magnitudes obeys GPD distribution.Then,after setting the trigger condition,the Monte Carlo simulation method is used to obtain the relationship between the fixed coupon rate of the catastrophe bond issued by the monetary value K and the parameters in the model combined with the earthquake distribution and pricing framework.At last,according to the losses distribution caused by natural disasters have the characteristics of sharp peaks and thick tails and the dependency relationship between these losses,the extreme value theory is used to fit the tail of China's earthquake loss data from 1996 to 2016 in this paper.It is found that the tail of the seismic loss is obey the ordinary Pareto distribution and meets the regular variation(RV)structure.Then,the numerical analysis results are given,which means the catastrophe bond is priced with the pricing model approximation combined with the multivariate regular variation(MRV)structure and the dependency relationship between tail and tail loss distribution.