Research On Storm Surge Catastrophe Bonds Based On Wang Two-factor Model

In recent years,the frequent storm surge disasters in the coastal areas of China pose a huge threat to the normal life and economic development of the people in the coastal areas.However,at present,China has very limited means to prevent the catastrophe risk and has not established a complete catastrophe risk dispersion system.Catastrophe risk securitization provides a solution to this problem,that is,to issue catastrophe bonds.Catastrophe bond is the most successful catastrophe risk securitization product at present.Compared with other existing financial products,it can achieve the purpose of effective risk diversification and transfer risk from insurance market to capital market.At present,the pricing of catastrophe bonds is mainly studied from the following two perspectives: the first is to fit the distribution of catastrophe losses,and the second is to choose an appropriate pricing model.Based on the data of storm surge disaster loss in China over the years,this paper discusses in detail the difficulties that may be encountered in the process of issuing catastrophe bonds under the environment of China.Firstly,the distribution of catastrophe losses was fitted.Then,based on theoretical pricing framework and empirical pricing framework,combining the basic principles of catastrophe bonds and two classical catastrophe bond models,the pricing method of storm surge catastrophe bonds based on Wang's two-factor model was introduced and analyzed in detail.The empirical research of this paper is mainly divided into two parts.The first part is to fit the distribution of the occurrence frequency and loss amount of the storm surge catastrophe,and the second part is to choose the appropriate pricing model for pricing.The first part in 1989 to 2019,141 data of storm surge disaster happened in our country as samples,first by the CPI method according to the price level to adjust a direct economic loss,and then use a variety of distribution model of storm surge direct damage on the fitting sample data,then using the K-S inspection and A-D sort,to obtain the best effect of the model,Finally,lognormal distribution and Poisson distribution were selected to fit the loss amount of a single storm surge and the number of annual storm surge disasters,and the annual loss distribution of storm surge disasters was obtained as compound Poisson distribution.In the second part,this paper selects CAPM model in theoretical model and Wang two-factor model in empirical model to price storm surge catastrophe bonds with a term of one year.First use of Monte Carlo simulation method to calculate the corresponding different trigger points under different loss limit probability,then according to the principal guarantee respectively calculate principal safeguard,50% of the principal safeguard,total loss of the principal type of bond prices,and analyses the factors influencing the bond prices,found the loss amount and the principal and interest loss than will affect the catastrophe bond prices.Finally,this paper summarizes the research situation of the whole paper and forecasts the prospect of issuing storm surge catastrophe bonds in China.