Research On The Pricing Of Typhoon Bonds Under Compound Trigger Mechanism

Since the beginning of the 21st century,the frequency of natural disasters has been increasing,and the economic losses caused by them are on the rise.Catastrophes such as earthquakes,typhoons,and floods have brought immeasurable losses worldwide.Especially in the past 12 years,the direct economic losses caused by natural disasters in China have been over 250 billion yuan each year,and the number of people affected by disasters in China has exceeded 100 million each year.However,in the catastrophe risk market with sufficient demand,insurance companies face problems such as limited supply of catastrophe insurance products,insufficient underwriting capacity and solvency.Catastrophe bond,one of the means of catastrophe risk securitization,can transfer the catastrophe risk from insurance market to capital market and can help to provide ideas for solving the problems above.Therefore,this article takes the typhoon disaster in Fujian Province as the research object,and studies the compound trigger mechanism of typhoon disaster bond pricing in Fujian Province.First,this article illustrates the catastrophe risk securitization,the elements and structure of catastrophe bond products as well as the operation mechanism,trigger mechanism,and the framework of the catastrophe bond pricing model;then this article collects data including the typhoon loss,area that is affected,the number of people affected and the number of typhoons landing in Fujian Province from 1989 to 2019.Third,this article establishes independent distributions of the data and selects the statistical distribution with the best goodness of fit so that it can comprehensively and accurately describe the characteristics of the typhoon disaster in Fujian Province;then,this article uses the Copula function to establish the joint distribution of loss-affected area to form the compound trigger mechanism of typhoon bond in Fujian;this article further derives the term structure of interest rates from simplified to complex and then uses Monte Carlo simulation to obtain the simulation sequence of interest rates,and then uses the pricing model based on equilibrium pricing theory to calculate the price of typhoon bonds in Fujian Province under loss-area compound trigger mechanism.Then the sensitivity analysis is conducted mainly based on the term structure of interest rates.In the empirical process of this article,the model and its results are closely linked and the logic is clear.Finally,this article comes up with countermeasures and suggestions for the development of catastrophe bonds in China on the basis of the entire empirical process.