Research On The Design And Pricing Of Typhoon Catastrophe Bonds Triggered By Two Risk Factors

The frequent occurrence of large-scale natural disasters in the world has resulted in increasing economic losses,which has brought increasingly severe challenges to the management of catastrophe risk,and also increased the pressure on the payment of catastrophe insurance.In order to reduce losses,the insurance industry is trying to find more financing ways and use advanced financial derivatives to transfer potential losses to investors.As an important financial tool,catastrophe bond can effectively reduce the risk of catastrophe insurance compensation,and has strong practicability,which has been widely used in the field of risk securitization.Relatively speaking,the development of foreign catastrophe bond market is relatively rapid,while the development of China’s catastrophe bond market is relatively lagging behind,with a large development space.There are two main core issues in the issuance of catastrophe bonds,one is the design and innovation of catastrophe bonds based on the demand for diversification of risk,and the other is the reasonable pricing of catastrophe bonds.Its research will provide assistance for the healthy development of China’s catastrophe bond market and accelerate the construction of China’s modern catastrophe risk management system.Based on the two core issues of catastrophe bond research and the current situation of frequent typhoon disasters in China,this paper takes the typhoon catastrophe bond as an example,based on the equilibrium pricing theory,and from the perspective of catastrophe compound trigger default mechanism and payment structure,innovates the design and pricing research of catastrophe bond products.This paper designs a flexible coupon payment and innovates the pricing model of catastrophe bonds in order to enrich the study of catastrophe bonds in the financial market,and provide theoretical reference and new methods for the study of typhoon catastrophe bonds pricing and risk management.This paper systematically studies the product innovation and pricing of typhoon catastrophe bonds from the following four aspects.First,based on the relevant data of typhoon disaster paths over the years in China,the generalized Pareto（GPD）model is used to fit the economic loss distribution,and the common right deviation distribution is used to fit the distribution function of wind speed.After the AD test and KS test,it is considered that the Clayton Copula function is more reasonable as a connection function,so it is used to describe the correlation between typhoon variables;The second is to apply CVaR method to the trigger mechanism setting of two risk triggers,integrate the flexible coupon and principal payment design,design the flexible payment mechanism of bond coupon and principal,link the payment amount with the severity of loss,and make the design of bonds more realistic;Thirdly,based on the equilibrium pricing theory,the CIR interest rate model is introduced to describe the interest rate fluctuations in the financial market,and the trigger mechanism of two risk factors is constructed under the catastrophe risk,and the catastrophe bond model taking typhoon as an example is innovatively designed.Fourth,use the Monte Carlo method to realize the actual pricing of bonds,and finally conduct sensitivity analysis of bond prices.The following conclusions can be drawn from the study:First,if the survival rate of the principal is determined by the cumulative value of the loss and wind speed at the maturity of the bond,rather than the single typhoon disaster data,then the change of the bond price will be more stable and the risk will be lower.Second,when analyzing how parameters affect bond price fluctuations（correlation coefficient between wind speed variable and economic loss variable）affects the pricing of catastrophe bonds.Under the unconditional quantile,the correlation between the price of catastrophe bonds and typhoon disaster variables is inversely proportional.In the conditional quantile,influence the correlation of trigger value between two variables.The value of trigger valuealso increase with the increase of.However,the obtained bond price does not show obvious change rules.Third,there is a positive correlation between the confidence level and the price of catastrophe bonds.Therefore,policy recommendations are proposed:to improve the catastrophic database,improve the accuracy of catastrophic data,strengthen the construction of the legal system,and provide a good operating environment for catastrophic bonds;Encourage insurance companies to open up to the outside world and learn advanced technical experience;Enhance the enthusiasm of insurance companies to vigorously develop catastrophe bonds.