×Over-The-Counter Derivatives

It is envisioned that the initial transactions will be OTC derivatives based on simple weightings of wind readings. As an example, a sample transaction has been designed based on a set of six hypothetical stations, three in Miami-Dade (MD1, MD2, MD3) and three in Tampa Bay (TB1, TB2, TB3). An index is created equal to the simple average across the six stations of the maximum one minute sustained windspeed at each station during an entire hurricane season.

The OTC contract is a call spread on the index values—long a call at 75 miles per hour, and short a call at 100 miles per hour. The contract value is set at $500,000 per tick (mile per hour). The maximum windspeed for each station in the index is 140 mph, and the minimum is 70 mph.

Note that this contract mimics a combination of occurrence and aggregate cover, since it looks for the highest windspeed across an entire season for each windstation. See the attached spreadsheet for example payout scenarios.