Abstract
Recently, the losses of natural disasters became larger due to climate change and economic development. Those losses have great influence on not only the safety of human life and property but also the catastrophe risk insurance market. Therefore researchers design catastrophe-linked securities such as catastrophe bond in order to translate such risk into capital market. However there are lacks of loss data caused by typhoon or flood and impartial index such as property claims services (PCS) index in American. It’s a problem when we want to transfer risk using CAT bond in Taiwan. Therefore, in this paper we use rainfall and runoff to be our indexes which is different from past studies with loss as an index. Rainfall is the common factor we know that may results in flood. However, according to hydrology, runoff is the most direct factor that causes flood. Unfortunately, runoff can’t be observed by real data. According to the rainfall and discharge data, we use storage function model to estimate it. As an example, one discharge station and three rainfall stations of Keelung River are selected in designing indexes of CAT bonds.