Research On The Pricing Of My Country's Earthquake Catastrophe Bonds Based On Compound Triggering Mechanism

Catastrophes are characterized by high losses and will cause major damage to the lives and property safety of the people.With a vast territory and a large population,our country is one of the most severely damaged countries in the world.In the face of huge damage from catastrophes,my country's catastrophe risk management based on government financial appropriations has great deficiencies.In recent years,various national government departments have issued a series of notices to promote the insurance industry to better play its role in catastrophe relief and loss compensation,strengthen the government,the insurance market and the capital market's ability to diversify catastrophe risks,and increase the risk of catastrophe losses.Compensation ability.According to international catastrophe risk management experience,catastrophe bonds are innovative products in the international insurance market,which transfer catastrophe risks to capital markets with large capacity and sufficient funds.Catastrophe bonds can not only strengthen the country's resistance to catastrophe risks,but also improve the underwriting capacity of the insurance market while providing multiple investment options for the capital market.In-depth research on the operational mechanism and pricing of catastrophe bonds is conducive to the improvement of my country's catastrophe risk management system,and is of positive significance to the country's economic development and social harmony.In response to my country's earthquake catastrophe risk,in the process of using catastrophe bonds to disperse catastrophe risks,bond pricing is the key and difficult issue.The price of catastrophe bonds is affected by many factors,such as loss models,pricing methods,interest rate models,etc.The difference will affect the calculated pricing results.Research on the operating mechanism and pricing model of catastrophe bonds,establish a pricing model based on the actual laws and characteristics of earthquake catastrophe losses,make the theoretical model consistent with the actual loss process,and promote the development of catastrophe bonds in the field of catastrophe risk management in my country.Application and practice.This paper builds a bond pricing model with a compound trigger mechanism,uses the POT model to fit the marginal distribution of direct economic losses and the affected population,uses the Copula function to fit the joint distribution,and combines the random interest rate model and the equilibrium pricing model to perform Monte Carlo simulation.Pricing catastrophe bonds.In view of the current actual situation in my country,the design of a compound trigger mechanism and a floating payment structure makes the payment conditions of catastrophe bonds diversified to meet the needs of different bond investors.According to the results of empirical analysis and sensitivity analysis,the conclusion of my country's earthquake catastrophe bond pricing is obtained and the catastrophe risk management countermeasures suitable for my country's national conditions are proposed.The research structure of this article is as follows:The first chapter is the introduction.It mainly elaborates the research background and research significance,summarizes and reviews the theories and pricing research of catastrophe bonds at home and abroad,introduces the research methods,research content and structure of this article,and proposes this article Innovations and deficiencies.The second chapter is an overview of catastrophe bond theory.This chapter explains the theoretical basis of catastrophe bonds.First,it introduces the meaning,characteristics and risk management methods of catastrophe risk,and introduces the main participants,operation process,trigger mechanism and issuance procedures of catastrophe bonds as a means of catastrophe risk management.,To introduce in detail the operating mechanism of catastrophe bonds.When pricing catastrophe bonds,it is necessary to fit the loss distribution,introduce the common thick-tailed distribution and the POT model commonly used in recent years,as well as the Copula model required by the compound trigger mechanism.In the application of pricing models,the models include incomplete market models and complete market models.This article mainly applies the equilibrium pricing theory in incomplete market models.The theoretical basis of catastrophe bonds is the main content of this chapter,which provides theoretical support for the following empirical analysis.The third chapter is the fitting of earthquake loss.The Log-normal distribution,Gamma distribution,Weibull distribution and POT model that are commonly used to fit thick-tail features are used to fit the direct economic losses and the affected population respectively,and the R software is used to test separately,so as to obtain the best-fitting marginal distribution.Then use the Archimedes Copula function to fit the joint distribution of the two variables to obtain the joint distribution function.This chapter lays the foundation for the bond pricing model,using loss fitting and an appropriate bond pricing model to obtain the price of the earthquake catastrophe bond.The fourth Chapter is an empirical study of bond pricing.Using the direct economic loss and the joint fitting distribution of the affected population in the previous chapter,the bond starting value is set,and the bond loss path is simulated through Monte Carlo to obtain the bond principal and coupon remaining rate.Then use the CIR stochastic interest rate model to describe the changes in interest rates,combined with the equilibrium pricing formula,to get the theoretical bond price.Subsequently,the sensitivity analysis of bond pricing is carried out,and the impact of changing the trigger value and CIR interest rate parameters on bond prices is analyzed,and the key factors of catastrophe bond pricing are fully considered.Changes in the trigger value and CIR interest rate parameters affect the impact of medium and long-term bonds.The impact is greater than short-term bonds,while the principal and coupon remaining ratios of medium-and long-term bonds are relatively low,and bond prices are relatively low.The risk of mid-and long-term bonds is relatively high,and parameter changes have a greater impact on mid-and long-term bonds.In the pricing of catastrophe bonds,the risk measurement of midand long-term bonds should be strengthened;while short-term bonds have lower risks,higher prices,and parameter changes It has less impact on prices,is conducive to risk management,and meets the investment needs of most investors.The fifth chapter is the conclusion and outlook.According to the research in this article,it can be seen that the influencing factors of earthquake catastrophe bond pricing include loss model,stochastic interest rate model,payment structure and trigger value setting.POT model and Copula function have good effects in catastrophe loss prediction.In terms of catastrophe legal system,government role,insurance market and capital market construction,strengthening and innovation of pricing model,talent training,etc.,it proposes reference suggestions suitable for my country's national conditions.Finally,it puts forward a bright prospect for my country's catastrophe bond construction.The innovations of this article are:(1)Different from choosing loss and magnitude as trigger conditions in the past,this article chooses direct economic losses and the affected population parameters that effectively represent indirect losses to establish a compound trigger mechanism.Reasonable selection of trigger conditions is crucial to bond issuance and pricing;(2)In terms of payment structure,this paper chooses a floating payment structure.The investment income of bond investors and the loss of catastrophe events show a reverse relationship,and the risks taken are effectively distinguished.Currently,there is little research on floating payment structure,which provides new ideas for the design of catastrophe bonds.