CATNet: A geometric deep learning approach for CAT bond spread prediction in the primary market

Traditional models for pricing catastrophe (CAT) bonds struggle to capture the complex, relational data inherent in these instruments. This paper introduces CATNet, a novel framework that applies a geometric deep learning architecture, the Relational Graph Convolutional Network (R-GCN), to model the CAT bond primary market as a graph, leveraging its underlying network structure for spread prediction. Our analysis reveals that the CAT bond market exhibits the characteristics of a scale-free network, a structure dominated by a few highly connected and influential hubs. CATNet demonstrates high predictive performance, significantly outperforming a strong Random Forest benchmark. The inclusion of topological centrality measures as features provides a further, significant boost in accuracy. Interpretability analysis confirms that these network features are not mere statistical artifacts; they are quantitative proxies for long-held industry intuition regarding issuer reputation, underwriter influence, and peril concentration. This research provides evidence that network connectivity is a key determinant of price, offering a new paradigm for risk assessment and proving that graph-based models can deliver both state-of-the-art accuracy and deeper, quantifiable market insights.

Publication Details

Journal
ArXiv.org
Published
2025-08-13
Primary Topic
Stock Market Forecasting Methods
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article
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article

CATNet: A geometric deep learning approach for CAT bond spread prediction in the primary market

ArXiv.org
Stock Market Forecasting Methods
article

CATNet: A geometric deep learning approach for CAT bond spread prediction in the primary market

article en

Abstract

Traditional models for pricing catastrophe (CAT) bonds struggle to capture the complex, relational data inherent in these instruments. This paper introduces CATNet, a novel framework that applies a geometric deep learning architecture, the Relational Graph Convolutional Network (R-GCN), to model the CAT bond primary market as a graph, leveraging its underlying network structure for spread prediction. Our analysis reveals that the CAT bond market exhibits the characteristics of a scale-free network, a structure dominated by a few highly connected and influential hubs. CATNet demonstrates high predictive performance, significantly outperforming a strong Random Forest benchmark. The inclusion of topological centrality measures as features provides a further, significant boost in accuracy. Interpretability analysis confirms that these network features are not mere statistical artifacts; they are quantitative proxies for long-held industry intuition regarding issuer reputation, underwriter influence, and peril concentration. This research provides evidence that network connectivity is a key determinant of price, offering a new paradigm for risk assessment and proving that graph-based models can deliver both state-of-the-art accuracy and deeper, quantifiable market insights.

ArXiv.org
Openalex Percentile: Top 42%
Stock Market Forecasting Methods
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