Economics, Econometrics and Finance
4 years ago

Florida insurers can effectively hedge hurricane losses with intrastate index options.

Journal of Financial Economics
The basis risk of catastrophic-loss index securities
J. David Cummins, David Lalonde, Richard D. Phillips

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Catastrophic-loss index options can help Florida insurers hedge hurricane losses. Insurers in the largest size quartiles can effectively hedge using intrastate indices. Smaller insurers may face significant basis risk, with statewide loss index effective only for the largest insurers.