Research On Pricing Of China's Typhoon Catastrophe Bond Based On The Equilibrium Pricing Theory

Some large natural disasters, such as typhoon, tsunami, earthquake and the landslides, mud-rock flow caused by them, not only bring serious difficulties to the local residents'life, but also have a certain negative impact on the development of national economy. Therefore, it is particularly important to find out some effective measures to cope with the serious consequences of natural disasters.In recent years, catastrophes have happened frequently in our country. Although the government and all sectors of society have provided help and donations, the effectiveness and extent of such methods are still inadequate. Catastrophe bond, as one innovative product which combines foreign financial insurances, can successfully increase the insurance companies'capability of undertaking the insurance for catastrophe risks and effectively solve the problems of the lack of compensation fund for catastrophes.The operation mechanism of catastrophe risk derivatives points to making a collection of idle funds on the market by issuing related securities products, if the natural disaster occurs, there is enough money for some aid after disasters, if there is no natural disasters, it can also compensate investors more benefit than the risk-free bond.In order to make the issue and circulation of catastrophe risk derivatives be more efficient on the complex financial market, the pricing problem of catastrophe risk derivatives has been the hot issues in economics research.In the paper, the author first matches the distribution of typhoon loss with the damages of more than 100 million Yuan. According to the characteristics of the data of domestic typhoon loss, the paper particularly chooses and analyzes one g-p distribution which can well match the distribution with a sharp peak, heavy tail and skewness. Then, based on Equilibrium Pricing Theory, the paper constructs one pricing model for the interest rate of typhoon catastrophe bond. Finally, the paper makes use of relevant data for pricing analysis and applies the model into three types of typhoon catastrophe bonds to calculate their interest rate.Through the g-h distribution of catastrophe loss, we achieve an ideal result. At the same time, in the empirical analysis we conclude that changes in interest rate of catastrophe bond fit the features of the financial market and some external factors should not be ignored.