Study on Optimal Discount Coefficient of Multi-Event Catastrophe Bonds under Risk Feedback Conditions

Due to the correlation between the trigger events of traditional multi-event catastrophe bonds, investors are more likely to suffer losses and their returns are more volatile. In order to reduce the impact of this disadvantage, taking earthquake catastrophe bond as an example, this paper reconstructs the payment function of multi-events catastrophe bond considering risk feedback. Under the objective of maximizing the hedging efficiency of insurance companies, we obtain the optimal discount coefficient of the cash flow payment after triggering all risk events by Monte Carlo simulation. The results show that under the new payment function, the expected return of investors increases and the volatility of return decreases, which makes the bond more attractive to the market. Finally, we focuses on the analysis of the impact of catastrophe triggering parameters on the optimal discount coefficient.