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Definition of '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.
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Investopedia explains 'Cat Spread'
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.
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Search results for 'Cat Spread'
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http://stocks.investopedia.com/stock-analysis/2010/An-Odd-Report-From-Deere-DE-CAT-CNH-AGCO-KMTUY0819.aspx
... Caterpillar (NYSE:CAT) likewise has a large spread for its next quarter, but
non-industrials like Wal-Mart and Procter & Gamble have much narrower spreads ...
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http://stocks.investopedia.com/stock-analysis/moneyshow/BondsThatLookBetterThanTreasuries.aspx
... Deere Capital's 2016 bonds recently traded around a spread of 65 basis points
over Treasuries, slightly tighter that the Cat Finance bonds. ...
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http://stocks.investopedia.com/stock-analysis/2011/Caterpillar-Hits-A-Pothole-CAT-TEX-DE-ETN-ITW-BWA-OSK0726.aspx
... The real questions for a CAT investor today are how long these good times ... bullish
analysts making aggressive calls, but the size of the spread on Caterpillar's ...
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http://www.investopedia.com/articles/07/random-markets.asp
... In the random market you can spread the financial section of the "Washington Post ...
a little help from 20th-century physicist Erwin Schrödinger and a cat in a box ...
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http://www.investopedia.com/articles/bonds/08/event-linked-bonds.asp
... low correlation can be very attractive for investors looking to spread risk within ...
a mutual fund that maintains a position in event-linked or CAT bonds (such ...
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http://stocks.investopedia.com/stock-analysis/2011/Can-Alcoas-Recovery-Continue-AA-FCX-AWC-ACH-RIO-KALU-DOW0413.aspx
... There was a big spread in analyst estimates (about $1.1 billion), and though Alcoa ...
GD) in aerospace and Ford (NYSE:F), Daimler, Caterpillar (NYSE:CAT) and more ...
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http://www.investopedia.com/articles/stocks/08/costs-bad-ceo.asp
... cost investors in subtle ways. During the internet boom, there was a
wide-spread IPO spinning scandal. Issuing firms gave pre-IPO ...
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http://www.investopedia.com/articles/financialcareers/10/sell-your-skills.asp
... if somehow "lion tamer" comes up in your search - and your friend's cat makes you ...
nearly as complicated as she thought they'd be and set out to spread the word ...
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