Research On Drought Catastrophe Bonds In China Based On International Cooperation

The risk of drought catastrophe is a common challenge in the world,how to solve the risk is a universal concern,especially for large drought-loss countries like China.In the face of catastrophe risk,the traditional means such as insurance and government assistance can not effectively disperse the catastrophe risk.Catastrophe Bond,a new financial tool,has been widely recognized in the world.Under the background of building the community with a shared future for mankind,it is necessary and feasible to disperse the risk of drought and catastrophe by means of international cooperation.Through the methods of literature research,quantitative research and normative analysis,this paper studies on drought catastrophe bonds in China based on international cooperation.This paper systematically analyzes the current situation of China's drought catastrophe losses and the global market demand for catastrophe bonds.Under the conditions that China's drought catastrophe risks are severe and the development of catastrophe risk dispersion means is insufficient,we can disperse the risk of drought catastrophe by issuing the drought catastrophe bonds.The global drought losses were captured through the compilation of EM-DAT databases,and 21 countries were selected as partners in international cooperation based on national drought economic losses and drought risk ratings,constructing a global drought catastrophe risk community led by China as the issuer of drought catastrophe bonds.Based on the analysis of the data of catastrophic drought losses in 21 countries,it is found that the drought catastrophe losses have the characteristics of right-off peak and thick tail,which accord with the characteristics of catastrophic disaster risk,and the frequency of catastrophic drought disasters follows Poisson distribution,the risk-loss distribution function obeys the generalized Vilfredo Pareto(GPD)function.Taking into account the risk preference of investors,a one-year drought catastrophe bond is issued using a tiered pricing method,and a value of $1,000 drought catastrophe bond is issued at a discount,through the high quantile calculation,the trigger conditions of the first-class and second-class drought catastrophe bonds are calculated respectively,this paper predicts the issuing prices of six types of bonds: principal-protected type,principal partial loss type and total loss of principal type.The results show that the higher the loss probability is,the lower the issuing price is.Finally,the paper designs the international cooperation model,trading mechanism and operation guarantee,and constructs a perfect operation mechanism of drought catastrophe bond.