A Study On The Pricing Of Interest Rate Of Typhoon Bond In China

Catastrophe is natural disaster which can make heavy property loss like earthquake, typhoon, hailstone, flood and so on. Right now, the catastrophe takes a shadow to the high rape of the world economics. Because of the low happen probability, the mass damage range and the big loss, catastrophe takes pressure to the insurance and the government. While the catastrophe risk securitization can shift the catastrophe risk to the capital market, raise capital from the capital market, increase the capacity of the insurance, in the some time, it can help the government to break away from the role of "the last insurer". Therefore, the catastrophe risk securitization creates the outcome for the insurance. There are lots of kinds of catastrophe risk securitization derivatives such as catastrophe (CAT) future, catastrophe (CAT) option, catastrophe (CAT) swap and catastrophe (CAT) bond. Among of these products, catastrophe bond is widely used in risk management because of its advantage.China is regarded as a country had heavy catastrophe risk. Because of our geographical position, China has to suffered the huge loss which made by typhoon every year. So, it' s very important to develop the catastrophe risk securitization in our country, especially the typhoon risk securitization. In consideration of the reality of our country that bond is the most suitable securitization product in China, this paper combines the typhoon risk and catastrophe bond to calculate the most suitable interest rate of typhoon bond in China.First, the paper introduces the developing process and history of catastrophe securitization, introduces the type of catastrophe derivatives especially the advantage of the catastrophe bond.Second, this paper introduces the different of the running process of the catastrophe bond and the type of catastrophe bond. At the same time, the paper uses the mathematical method to compute the advantage of the catastrophe bond if it comes into the capital market.Third, the main part of this paper, based on the Cox model, models the loss distribute and typhoon bond interest rate which fitted the reality of China.Last, the paper uses the typhoon data from 1991 to 2006, calculates the typhoon occur probability of China. Then, the paper calculates the one-year interest rates of typhoon bond in China and the sensitivity of interest rate of this typhoon bond.