This thesis reviews the recent trends in the insurance industry, managing catastrophic risk by issuing insurance-linked securities (often called “Cat Bonds”)and transferring the risk to the capital market and investigates the basic models describing the logic of such securitization needs and security design. The difference between traditional insurable risk and catastrophe is described. It also identifies advantages and disadvantages of the Cat Bonds. Later, it deals with some issues with regard to the pricing of the bonds; A pricing model developed by Cox and Pedersen and an option pricing approach using PCS index options. This thesis intends to deal with various aspects of the Cat Bonds so as to provide better understanding of the overall features and characteristics of the Cat Bonds. Finally under Korean catastrophic risk structure, the thesis tries to give some implication about adapting catastrophic risk management process and develop risk transfer mechanism comprising both the insurance market and the capital market.
