It is important to be able to quantify potential seismic damage to structures andcommunicate risk in a comprehendible way to all stakeholders. The risks involved withdamage to constructed facilities due to catastrophic disasters can be hedged usingfinancial instruments such as Catastrophic (CAT) bonds. This work uses the loss ratio(Lr), which is the ratio of the repair cost to the total replacement cost, to representstructural and non-structural damage caused by earthquakes.A loss estimation framework is presented that directly relates seismic hazard toseismic response to damage and hence to losses. A key feature of the loss estimationapproach is the determination of losses without the need for fragility curves. APerformance-Based Earthquake Engineering (PBEE) approach towards assessing theseismic vulnerability of structures relating an intensity measure (IM) to its associatedengineering demand parameter (EDP) is used to define the demand model. Anempirically calibrated tripartite loss model in the form of a power curve with upper andlower cut-offs is developed and used in conjunction with the previously defined demandmodel in order to estimate loss ratios. The loss model is calibrated and validated for different types of bridges and buildings. Loss ratios for various damage states take intoaccount epistemic uncertainty as well as an effect for price surge following a majorhazardous event. The loss model is then transformed to provide a composite seismichazard-loss relationship which is used to estimate financial losses from expectedstructural losses.The seismic hazard-loss model is then used to assess the expected spread, that isthe interest rate deviation above the risk-free (prime) rate in order to price two types ofCAT bonds: indemnity CAT bonds and parametric CAT bonds. It is concluded that CATbonds has the ability to play a major role in hedging financial risk associated withdamage to a civil engineering facility as a result of a catastrophe. However, it is seen thata potential investor seeks a high degree of confidence when investing in CAT bonds asthere is huge uncertainty surrounding the probability of occurrence of an event.
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