Parametric Hurricane Contracts

1
Parametric Hurricane Contracts

• The Carvill Hurricane Index and the Chicago
  Mercantile Exchange

2
Why create hurricane futures and options

• Inadequate supply of insurance capacity to match
  peak zones
• Investors showing increased appetite for cat risk
  as non-correlating asset class
• Investors looking for efficient ways to hedge
  hurricane related price volatility in other asset
  classes
• Need for standardized exchange traded contract to
  broaden investor interest
• Simple index free of insurance jargon that all
  investors can easily understand

3
The Carvill Hurricane Index

• A collaboration between CME, Carvill and TFS
  Energy
• Parametric index incorporating wind speed and
  radius to hurricane force winds
• Based on publically available data from National
  hurricane Center
• Publicly available formula for calculating index
• Value of index calculated in real time throughout
  the storms life
• Final value of the index calculated immediately
  upon landfall
• Modelable

Other exchange products rely on insurance
industry claims data
Full and final storm settlement within 12-36
hours of landfall
4
CME / CHI three core products
Chicago Mercantile Exchange

• Seasonal Aggregate
• The aggregate of land falling CHI values for
  entire hurricane season
• Seasonal Maximum
• The maximum of land falling CHI value for entire
  hurricane season
• Named Storm Contracts
• CHI value for a named land falling storm

Futures / Options / Binary Options available
5
CHI / CME regions
Chicago Mercantile Exchange

• Core products listed for 6 separate regions
• Gulf Coast (TX to AL)
• Florida
• Southern Atlantic Coast (GA to NC)
• Northern Atlantic Coast (VA to ME)
• Eastern US (TX to ME)
• Cat in a box

Futures / Options / Binary Options available
6
Real-time evaluation - Katrina
7
Carvill Hurricane Index and the CME

• Advantages
• Incorruptible index using a formula all investors
  can easily understand
• Efficient use of capital by trading on margin
• Rapid speed of settlement
• Standardized no dispute contracts
• Trading anonymity
• Ability to trade cat risk and build a diversified
  portfolio without being in the insurance business

Trading for the 2008 season is now active