Cat Spread

A cat spread is a type of derivative traded on the Chicago Board of Trade (CBOT) that takes the form of an option on a catastrophe futures contract. In other words, a cat spread is basically a call option spread bought by insurance companies on catastrophe futures contracts. Purchasing a cat spread involves buying or selling a call option whose underlying asset is a catastrophe contract, while simultaneously selling or buying the same number of call options at a higher strike price. A cat spread is used by insurance companies to hedge risk coverage of catastrophic events.

Let’s say an insurance company buys a cat spread on a catastrophe futures contract with an expectation that the loss ratio on catastrophic events will fall within the range of 20% to 40%. If losses fall within that range, the insurance company would exercise the option and sell the contract, enabling the company to make a profit which will be used to offset the losses. However, if the loss ratio does not fall within the 20% to 40% range, the option will expire at zero and the only thing the company has to lose is the original investment.


Investment dictionary. . 2012.

Look at other dictionaries:

  • Cat flu — is feline upper respiratory tract disease. It is generally a misnomer since it usually does not refer to an infection by an influenza virus. Instead it is a syndrome: a term meaning any flu like respiratory disease in a cat. The signs of this… …   Wikipedia

  • Cat's cradle — is a well known series of string figures created between two people as a game. The name of the entire game, the specific figures, their order, and the names of the figures vary. Versions of this game have been found in indigenous cultures all… …   Wikipedia

  • Spread Your Evil Wings and Fly — is A music CD by the band James Kochalka Superstar. It is their second release on the Rykodisc label, following their debut Our Most Beloved, which collected earlier songs from a variety of independent labels.A video was made in 2006, on a Game… …   Wikipedia

  • Cat health — Topics concerning the health and welfare of domestic cats includes infectious and genetic diseases, diet and nutrition and non therapeutic surgical procedures such as neutering and declawing. Diseases Infectious diseaseAn infectious disease is… …   Wikipedia

  • Cat — For other uses, see Cat (disambiguation) and Cats (disambiguation). Domestic cat[1] …   Wikipedia

  • Cat o' nine tails — This article is about the implement of punishment. For the Cat O Nine Tails plant, see Typha latifolia. For the film, see The Cat o Nine Tails. A leather cat o nine tails pictured with a U.S. dollar bill for size comparison. A U.S. dollar bill is …   Wikipedia

  • Cat righting reflex — The cat righting reflex is a cat s innate ability to orient itself as it falls in order to land on its feet, often uninjured. The righting reflex begins to appear at 3 4 weeks of age, and is perfected at 7 weeksFact|date=March 2008. They are able …   Wikipedia

  • Cat's eye (road) — The cat s eye is a retroreflective safety device used in road construction and was the first of a range of raised pavement markers. It originated from the UK in 1933 and is used all over the world.It consists (in its original form) of two pairs… …   Wikipedia

  • Cat's Cradle — For other uses see Cat s cradle (disambiguation). Infobox Book name = Cat s Cradle title orig = Cat s Cradle translator = image caption = First edition hardback cover author = Kurt Vonnegut illustrator = cover artist = country = United States… …   Wikipedia

  • Cat Ballou — Infobox Film name = Cat Ballou director = Elliot Silverstein writer = Walter Newman starring = Jane Fonda Lee Marvin Michael Callan Dwayne Hickman Nat King Cole Stubby Kaye released = June 24, 1965 runtime = 97 min. language = English imdb id =… …   Wikipedia

Share the article and excerpts

Direct link
Do a right-click on the link above
and select “Copy Link”

We are using cookies for the best presentation of our site. Continuing to use this site, you agree with this.