Research On Innovation And Pricing Of Flood Catastrophe Bonds

Catastrophes are very destructive.The occurrence of such huge catastrophic events will cause severe losses to the affected areas.However,there are many catastrophes in our country and the losses are often very serious.Before the outbreak of catastrophes,there are usually no warnings,and the lack of necessary catastrophe early warning mechanisms makes people unprepared for catastrophes.Therefore,the occurrence of huge catastrophic events will not only guarantee the safety of the lives of the people,but also Huge economic losses of hundreds of millions to the society have also increased the pressure on the government and reinsurance companies to pay.Today,major insurance companies are thinking about how to transfer the risks brought by catastrophes,and also take them as the focus of business development.Professionals in the financial industry are also focusing on exploring methods and approaches to solve catastrophe risks.In this environment,the capital market has developed catastrophe bonds to transfer huge insurance risks for insurers.In the second chapter of this article,we briefly introduce four commonly used catastrophe risk securitization products.Through comparative analysis,we selected catastrophe bonds as the research object.After consulting relevant materials,we summarized the issuance of catastrophe bonds.And operational procedures,and at the end of Chapter 2,the feasibility of issuing catastrophe bonds in China is analyzed according to the basic national conditions in China.On this basis,a two-stage flood catastrophe bond was designed,which enriched the types of catastrophe risk securitization products,provided investors with more choices,and provided new ideas for the innovation of insurance products.In order to make full use of the loss information of the flood disaster,a multiple trigger mechanism was used to construct the flood disaster bond model.Therefore,the function is introduced in the third chapter of the article,which provides a theoretical basis for fitting the multiple trigger mechanism.Next,the empirical test and analysis of the innovative catastrophe bondsdesigned are as follows.The basic idea is as follows: Floods,as one of the typical catastrophic events,have caused hundreds of millions of losses to the Chinese economy.The development of catastrophe bonds has Strong operability and practical significance.Therefore,the risk of flood disasters is taken as the research object,and the three provinces of Hunan,Hubei,and Jiangxi where flood disasters occur frequently are selected geographically.The data of direct economic losses and crops affected by flood disasters in the three provinces of Hunan,Hubei,and Jiangxi between 2006 and 2017 are selected as data.The triggering conditions of the flood catastrophe bonds were determined first by their respective edge distribution functions,and then by using several commonly used Copula functions for fitting.The Gumbel copula function with the best effect was selected through the goodness-of-fit test to establish the direct economic loss.A joint distribution function with the affected area of the crop,and then a bond model to calculate the price of the catastrophe bond.The empirical results show that the bond price has a positive correlation with the change in the trigger value,that is,as the trigger value increases,the possibility of losing cash flow decreases,so the risk return rate is low,resulting in high bond prices,and the price difference is very obvious.There is a linear negative correlation between the bond price and the principal loss ratio of the insurance.As the principal loss ratio is gradually increased,it is found that the bond price gradually decreases at a constant rate.