Abstract
The rapid development of catastrophe bonds provides a new idea for catastrophe risk dispersion, since its traditional means fail to afford the economic losses caused by the global drought catastrophe. With the deepening of the concept of the community with a shared future for mankind, there is an opportunity to issue global drought catastrophe bonds through international cooperation. Based on the data of global drought catastrophe losses from 1900 to 2018, this paper selects 21 countries as the primary participants of international cooperation and studies the pricing of drought catastrophe bonds by the POT model and high quantile estimation. The results show that the first-class bond has a 10% occurrence probability with the trigger point of $252.54 million, and the second-class one has a 35% occurrence probability with the trigger point being $117.13 million. In line with high quartile estimates, the one-year principal-protected catastrophe bonds with a face value of $1,000 are valued at $957.14 and $939.29, respectively. Besides, the principal portion of the lost bonds is $912.50 and $783.04, while the total of it is $867.86 and $626.79, respectively.
Highlights
According to a report by the CRED (Center for Research on Environmental Decisions), 347 droughts were recorded between 1998 and 2017, resulting in economic losses of about $124 billion; droughts affected the lives of around 1.5 billion people worldwide, accounting for 33 percent of the people affected by all disasters
In January 2011, Swiss Re reached an agreement with Successor X Ltd. (“Successor X”) by integrating earthquake risks in Australia with those in the United States
Based on the abovementioned analysis, this paper applies the POT pricing model and attempts to price the drought catastrophe bonds using the global drought catastrophe loss data. is is the first time that catastrophe bond pricing has been applied to drought and catastrophe, with the research horizon based on global losses. rough the study on the pricing of drought catastrophe bonds, we hope to provide a new idea and means for the global drought catastrophe risk dispersion
Summary
According to a report by the CRED (Center for Research on Environmental Decisions), 347 droughts were recorded between 1998 and 2017, resulting in economic losses of about $124 billion; droughts affected the lives of around 1.5 billion people worldwide, accounting for 33 percent of the people affected by all disasters. Rough the collation of relevant literature, the related research of catastrophe bonds mainly focuses on three aspects: e first is the catastrophe bond pricing model. E former mainly focuses on various pricing models and factors affecting pricing; the latter involves practical application pricing of flood, earthquake, and typhoon catastrophe bonds. Based on the abovementioned analysis, this paper applies the POT pricing model and attempts to price the drought catastrophe bonds using the global drought catastrophe loss data. Is is the first time that catastrophe bond pricing has been applied to drought and catastrophe, with the research horizon based on global losses. Rough the study on the pricing of drought catastrophe bonds, we hope to provide a new idea and means for the global drought catastrophe risk dispersion Based on the abovementioned analysis, this paper applies the POT pricing model and attempts to price the drought catastrophe bonds using the global drought catastrophe loss data. is is the first time that catastrophe bond pricing has been applied to drought and catastrophe, with the research horizon based on global losses. rough the study on the pricing of drought catastrophe bonds, we hope to provide a new idea and means for the global drought catastrophe risk dispersion
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