This paper presents an alternative method for covering extreme losses caused by catastrophic events, such as earthquakes, is to transfer part of the risk to the financial markets by issuing CAT bond. First,we present a valuation model for CAT bonds for earthquakes sponsored by the Colombian government. Furthermore, using the data of the earthquakes that occurred in Colombia from 1900 to 2015, we estimate the frequency and severity parameters for the valuation model. Finally, we use Montecarlo simulations to demonstrate the viability of catastrophe bonds in the colombian context.
