Research On The Design And Pricing Of Catastrophe Equity Put

In recent years,natural disasters have occurred frequently all over the world,exerting a great impact on sustainable economic and social development as well as people’s production and life.At present,China is studying and exploring a catastrophe risk management system,and has established a catastrophe insurance system led by the government and actively participated by multiple market entities for post-disaster management of catastrophe risks.In 2013,Yunnan Province began to pilot earthquake catastrophe insurance.Since then,catastrophe insurance pilot projects have been implemented in Guangdong,Sichuan and Shenzhen in response to local risks such as earthquakes,typhoons and floods.Catastrophe insurance has played an increasingly important role in post-disaster economic compensation.Catastrophe is an event with small probability and high loss,which has high requirements on the solvency and risk dispersion ability of insurance institutions after disaster.Due to the restriction of huge compensation capacity,catastrophe insurance cannot play its role fully in catastrophe risk management system.It is necessary to expand the financing channels of insurance institutions by means of catastrophe risk securitization and improve the mechanism of catastrophe risk diversification.Business practice has proved that the payment of catastrophe claims will often make the stock prices of insurance companies fall,and then impact the financial operations of insurance companies,such as asset shrinkage and financing cost increase.As the main way of catastrophe risk securitization,the catastrophe equity put is essentially a double-trigger put option that is based on the stock of insurance companies and agrees to meet the minimum loss conditions.It can enable(re-)insurance companies to obtain needed funds at a lower cost when the stock price falls due to huge claims and avoid further financial crisis after the disaster.Ensure the stability of insurance operation after the occurrence of catastrophe.In order to explore the establishment of a multi-level catastrophe risk diversification mechanism and effectively improve the catastrophe risk bearing capacity of insurance companies,this paper focuses on the catastrophe interest put in catastrophe securitization products,studies the catastrophe interest put pricing through the innovation of the payment model,and designs two catastrophe interest models: Catastrophe put and dual-strike price catastrophe put combined risk ratio.The catastrophe interest put with risk ratio integrates the ratio of value at risk(Va R)and expected loss risk under a certain confidence level into the catastrophe interest put pricing formula,and positively correlates the option yield of insurance companies with the catastrophe loss size,so that flexible returns can be obtained according to the severity of catastrophe losses.The double strike price catastrophe interest put is to stratified the cumulative loss and set different strike prices for different levels of catastrophe cumulative loss,so that the equity capital of the insurance company can be protected when the insurance company fails to reach the agreed payout but its stock falls to a certain extent under the influence of catastrophe payout.By exploring the new mechanism of positive correlation between option income and catastrophe payout and the layered mechanism of catastrophe option cumulative loss,new ideas are provided for improving insurance companies’ underwriting capacity and compensation capacity and realizing catastrophe risk transfer,so as to ensure that insurance companies can effectively make use of catastrophe equity put income to compensate catastrophe losses.In this way,the risk stability of the equity capital of insurance companies underwriting catastrophe can be enhanced,the underwriting ability of insurance companies can be improved,the government’s financial expenditure pressure on catastrophe can be reduced,and more abundant risk investment tools can be provided for the capital investment market.Under the framework of product probability space of catastrophe probability subspace and financial probability subspace,the risk neutral pricing of catastrophe interest puts is carried out,and the catastrophe interest put pricing formulas with risk ratio and double strike price catastrophe interest puts are derived respectively.Taking the direct economic loss data of typhoons in China from 1990 to 2019 as research samples,R software was used to conduct reasonable programming numerical simulation,and the influence of important parameters of the model was further analyzed after obtaining the theoretical price.Through the analysis,the conclusion is drawn: For catastrophe interest puts with integrated risk ratio,at a low confidence level,the price of catastrophe option changes positively with the increase of risk ratio impact factor,at which time insurance companies can obtain more option returns.At a high confidence level,the price of catastrophe interest puts with integrated risk ratio will be lower than that of ordinary catastrophe options.In this case,insurance companies as option buyers will bear less investment risk.For catastrophe puts under the double strike price,the larger the strike price,the higher the option price.The price level of catastrophe puts under the double strike price is higher than that of ordinary catastrophe puts and the higher the price becomes with the increase of the set trigger value.In addition,the catastrophe put price of double strike is proportional to the intensity of loss occurrence and expiration time.Finally,in order to further promote the design and development of our country’s right to sell catastrophe products,according to our country’s situation and put forward relevant recommendations.