Approximately 160 students over two nights participated in mock HuRLO trading sessions using simulated storms. The market behaved quite efficiently, both by producing a large initial investment pool and by investments in specific counties closely tracking the objective probability of a landfall at various points in time. The tests also showed how intuitive the platform is to use.
PALM BEACH, Fla. (PRWEB) October 7, 2008
HuRLOs are innovative commodity options that will enable market participants to hedge against the risk that a selected coastal county or region on the U.S. Atlantic and Gulf coast will be first hit by the next hurricane to make landfall. In 2008, seventy-nine different HuRLOs will be available in two series. Seventy-eight HuRLOs in each series correspond to a hurricane making landfall in a specified coastal county or region and one HuRLO in each series, called the "No Landfall" HuRLO, represents the event that no next hurricane makes landfall in the enumerated coastal counties or regions for the rest of this hurricane season. Each series corresponds to a different hurricane making landfall on the U.S. Atlantic and Gulf coast, if any. In 2008, only institutional traders and eligible businesses – known as Eligible Contract Participants – may trade HuRLOs.
"HuRLOs present opportunities to hedge that are not otherwise available solely by reason of the HuRLO market's structure – prospective purchasers need not find a willing counterparty to take the other side of the commodity contract," said Kenneth A. Horowitz, Chief Executive Officer of WRS. Mr. Horowitz added that, "Payments made by those living in or selecting other coastal, hurricane prone areas will underwrite hurricane risk in an open, dynamic and transparent financial market."
Philip Protter, Professor of Operations Research and Information Engineering at Cornell University (formerly, Director of Financial Engineering) explained, "The ability to purchase HuRLOs for one or several coastal counties in the most hurricane prone areas could lead to both more tailored hedging opportunities for eligible businesses as well as increased trading opportunities for those seeking to assume risk." Professor Protter added, "HuRLOs will also provide an alternative means to address the needs of the insurance and reinsurance industry with respect to hedging potential casualty losses from hurricanes."
In 2008, HuRLOs will trade on an exempt board of trade operated by CME Alternative Marketplace Inc., a subsidiary of CME Group, via WRS' Electronic Trading Platform and will be available for purchase by Eligible Contract Participants, such as institutional investors, financial institutions, hedge funds, businesses and certain high net worth individuals.
Dennis D. Dammerman, former Chairman and CEO of GE Capital and Vice Chairman of GE, who is involved in developing HuRLOs stated, "HuRLOs are not insurance and will not replace insurance. HuRLOs will help consumers and businesses fill in gaps in their insurance coverage, including deductibles, by creating a new form of hedge against the risk that a hurricane will make landfall first in a certain area, which would be expected to cause some uninsured damage or financial harm. Insurers and reinsurers can also use this market to hedge against their potential hurricane casualty exposure. In the HuRLO market the risk of hurricane landfall in one area is mutualized and underwritten by market participants who buy HuRLOs for other hurricane landfall areas."
Robert Meyer, Co-Director of the Center for Risk at the Wharton School of the University of Pennsylvania and Professor at the University of Miami, tested the trading platform at Wharton. Professor Meyer described the testing, "Approximately 160 students over two nights participated in mock HuRLO trading sessions using simulated storms. The market behaved quite efficiently, both by producing a large initial investment pool and by investments in specific counties closely tracking the objective probability of a landfall at various points in time. The tests also showed how intuitive the platform is to use."
Marc J. Greenspon, General Counsel for WRS, distinguished HuRLOs from other weather derivatives, "HuRLOs will be cleared by CME Clearing. Clearing firms will set daily credit limits for their customers. Customers will pay fully the premium for each HuRLO purchased and market participants are not permitted to short HuRLOs or trade on margin. These controls will limit any clearing firm exposure to credit risk and should facilitate the customer-clearing firm approval process."
More information may be found at http://www.HuRLOs.com or at http://www.WeatherRiskSolutions.com. The HuRLOs Frequently Asked Questions Guide may be accessed by clicking on the "Learn More Here" link.
Weather Risk Solutions, LLC
Weather Risk Solutions, LLC ("WRS") was founded by Kenneth A. Horowitz, one of the original founders of Cellular One and a well known entrepreneur. During the past four years, Mr. Horowitz, together with a group of experts in atmospheric sciences, including former staff of the National Hurricane Center and leading financial and economic mathematicians, developed Hurricane Risk Landfall Options – HuRLOs™ – and the WRS Electronic Trading Platform™.
By serving as the counterparty to every trade, CME Clearing virtually eliminates counterparty credit risk in the derivatives markets it clears. Processing more than one billion trades per year, CME Clearing settles accounts, clears trades, collects and maintains performance bonds/margins, regulates delivery and reports data. CME Clearing guarantees the performance of every trade and is backed by over $6 billion in financial safeguards.