Study On Catastrophe Bond Pricing Model Of China Based On Prospect Theory

Catastrophe bond is one of insurance risk securitization. Catastrophe bond transfers underwriting risk to securities business that can disperse underwriting risk in bigger area. China also has basic conditions to issue catastrophe bonds. But study on interrelated theories of catastrophe bond hangs behind in china, which is the restriction to issue catastrophe bond. In the studies on interrelated theories of catastrophe bond, study on catastrophe bond pricing method is the most important. So the study has important merit of theory and meaning of practice. The paper will study how to construct catastrophe bond pricing model in china.Firstly, the paper affirms research paradigm of chinese catastrophe bond pricing model. Any research should follow some research paradigm. Correctness and advanced nature of research paradigm let research work have good research conclusions. Because of research paradigm having defects, traditional catastrophe bond pricing model's stimulant price has exceptional difference with actual price of catastrophe bond. The paper has analysis on advantage and disadvantage of standard finance theory and behavioral finance theory being used in catastrophe bond pricing technology field. On the base, the paper has comparative study on the research paradigm of catastrophe bond pricing according to catastrophe bond pricing's characteristics. At last, the paper affirms research paradigm of chinese catastrophe bond pricing model, that let the paper have good research conclusions.Secondly, the paper amends the hypothesis of traditional catastrophe bond pricing model based on prospect theory, and affirms the basic hypothesis of Chinese catastrophe bond pricing model. Hypothesis has important affection on using range of pricing model. One reason that traditional catastrophe bond pricing model's stimulant price has exceptional difference with actual price of catastrophe bond on some conditions because of is that hypothesis based on standard finance theory doesn't accord with the facts. The paper has analysis on and amends the hypothesis of traditional catastrophe bond pricing model based on prospect theory, and affirms the basic hypothesis of Chinese catastrophe bond pricing model. It lets Chinese catastrophe bond pricing model have better stimulant price and bigger using range.Thirdly, the paper has analysis on defects of traditional catastrophe bond pricing model's value theoretics base, and uses value function theory to amend these defects. On the base, the paper affirms Chinese catastrophe bond pricing model's value theoretics base. The paper thinks that hypothesis, value estimation criterion and decision-making tool of traditional catastrophe bond pricing model's value theoretics base have defects. It is one reason that traditional catastrophe bond pricing model's stimulant price has exceptional difference with actual price of catastrophe bond on some conditions because of. So the paper uses value function theory to amend hypothesis, value estimation criterion and decision-making tool of traditional catastrophe bond pricing model's value theoretics base, and affirms Chinese catastrophe bond pricing model's value theoretics base. It lets Chinese catastrophe bond pricing model's stimulant price have better precision.Fourthly, harmony of catastrophe bond's dual attributes is carried out. And the paper has analysis on the matching method of deflective risk distributing and income. On the base, the paper affirms the matching method of deflective risk distributing and income that Chinese catastrophe bond pricing model should adopt. The paper analyzes systemic risk and non-systemic risk of catastrophe bonds'dual attributes. On the base, the paper filtrates and incorporates the systemic risk and non-systemic risk, and confirms that investment risk, technology risk and competition risk have important influence on catastrophe bond's dual attributes. So harmony of catastrophe bond's dual attributes is carried out. The paper draws useful lessons from traditional catastrophe bond pricing model's matching method of deflective risk distributing and income, and affirms Chinese catastrophe bond pricing model's matching method of deflective risk distributing and income based on catastrophe bond's dual attributes. Basic frame of Chinese catastrophe bond pricing model has been constructed.Fifthly, the paper has analysis on affection of investor's investment mentality on constrction of Chinese catastrophe bond pricing model, and solves the problem with reference point effect theory. Behavioral asset pricing theory thinks that investor's investment mentality has important affection on securities product's pricing. Based on behavioral asset pricing theory's point, anchorage mentality is the most stable mentality in investment process. The paper analyzes Chinese investor's investment mentality with reference point effect theory, and constructs catastrophe bond's reference price. The paper uses catastrophe bond's reference price and value function theory to solve affection of investor's investment mentality on constrction of Chinese catastrophe bond pricing model.At last, the paper constructs Chinese catastrophe bond pricing model based on the above research conclusions. Because catastrophe bonds haven't been issued in china, there are not market prices of catastrophe bonds. And regression test can't be done. The paper does two examples to explain how to use the catastrophe bond pricing model of china that is constructed in the paper. The paper uses reinsurance theoretical fair price, market implicated reinsurance price and actuarial theory to analyze feasibility of Chinese catastrophe bond pricing model's stimulant price, and gives reasonable explanation to Chinese catastrophe bond pricing model's stimulant price based on prospect theory.The author hopes that the paper can make significative research for development of catastrophe bond pricing theory in china, and accelerate issue of catastrophe bonds in china.