Pricing Multi-event Triggered Catastrophe Bonds Based on Copula-POT Model

The constantly expanding frequency and loss caused by natural disasters pose a severe challenge to the traditional catastrophe insurance market. This paper aims to develop an in-novative framework to price catastrophic bonds triggered by multiple events with extreme dependence structure. Given the low contingency of the bond’s cash flows and high return of the CAT bond, the multiple-event CAT bond may successfully transfer the catastrophe risk to the big financial markets to meet the diversification of capital allocations for most potential investors. The designed hybrid trigger mechanism helps reduce moral hazard and improve bond attractiveness with CIR stochastic rate, displaying the co-movement of the wiped-o ff coupon, payout principal, the occurrence and intensity of the natural disaster involved. As di ff erent triggered indexes of multiple-event catastrophic bonds are heavy-tailed with a variety of dependence relationship, nested Archimedean copulas are introduced with marginal distributions modeled by POT-GP distribution for excess data and common parametric models for moder-ate risks. To illustrate our theoretical pricing framework, we consider a three-event rainstorm CAT bond triggered by catastrophic property losses, in China during 2006–2020. Monte Carlo simulations are carried out to analyse the sensitivity of the rainstorm CAT bond price in trigger attachment levels,