Catastrophe Futures

DEFINITION of 'Catastrophe Futures'

Catastrophe futures are futures contracts traded on the Chicago Board of Trade (CBOT). These futures contracts are used by insurance companies to protect themselves against future catastrophe losses. The value of a catastophe futures contract is equal to $25,000 multiplied by the catastrophe ratio for the quarter. The catastrophe ratio is a numerical value proided by the CBOT every quarter.

BREAKING DOWN 'Catastrophe Futures'

Catastrophe futures started trading on the Chicago Board of Trading (CBOT) in 1992. The value of a catastrophe future contracts increase when catastrophe losses are high and decrease when catastrophe losses are low. In the event of a catastrophe, if losses are high, the value of the contract goes up and the insurer makes a gain that hopefully offsets whatever losses that might be incurred. The reverse is also true. If catastrophe losses are lower than expected, the value of the contract decreases and the insurer (buyer) loses money.

RELATED TERMS
  1. Catastrophe Excess Reinsurance

    Insurance for catastrophe insurers. Because of the unpredictable ...
  2. Catastrophe Loss Index - CLI

    An index used in the insurance industry to quantify the magnitude ...
  3. Cat Spread

    A cat spread is a type of derivative traded on the Chicago Board ...
  4. Catastrophe Insurance

    Insurance to protect businesses and residences against natural ...
  5. Catastrophe Swap

    A customizable financial instrument traded in the over-the-counter ...
  6. Workers' Compensation Catastrophe ...

    A type of loss reinsurance that is purchased by insurers of workers' ...
Related Articles
  1. Personal Finance

    Is Catastrophic Health Insurance Right for You?

    Catastrophic health plans protect you from high medical costs if you get seriously hurt or injured. But when is catastrophic the best option for you?
  2. Personal Finance

    How Catastrophic Health Insurance Works

    Catastrophic health insurance is open to people under 30 and those who qualify by income under the Affordable Care Act. But how exactly does it work?
  3. Trading

    Minis Provide Low-Cost Entry To Futures Market

    These contracts provide access to commodities without a huge capital commitment.
  4. ETFs & Mutual Funds

    Introduction To Currency Futures

    The forex market is not the only way for investors and traders to participate in foreign exchange.
  5. Investing

    Options on Futures

    Options on futures contracts offer another way for day traders to use options. These are traded on the same exchange as the underlying futures contract. Traders should take care to understand ...
  6. Trading

    The Difference Between Forwards and Futures

    Both forward and futures contracts allow investors to buy or sell an asset at a specific time and price.
  7. Personal Finance

    Homeowners Insurance Losers: States That Pay Most

    Which states charge you the most for homeowner's insurance? Hint: They're regularly featured on the Weather Channel.
  8. Trading

    Advantages Of Trading Futures Over Stocks (APPL)

    We look at the top eight advantages of trading futures over stocks.
  9. Trading

    An Introduction To Trading Forex Futures

    We explain what forex futures are, where they are traded, and the tools you need to successfully trade these derivatives.
  10. Markets

    How to Trade Options on Government Bonds

    A look at trading options on debt instruments, like U.S. Treasury bonds and other government securities.
RELATED FAQS
  1. Is short term care insurance a good idea?

    I have talked with an insurance agent and been approved for short term care insurance. I am 65 and in good health. I just ... Read Answer >>
  2. What is Warren Buffett's relation to "Supercat" insurance?

    Understand the concept of catastrophe reinsurance and learn how Berkshire Hathaway makes billions providing such insurance ... Read Answer >>
  3. What types of futures contracts are typically sold on an exchange?

    Explore the wide variety of available futures contracts traded on exchanges, which range from agricultural commodities to ... Read Answer >>
  4. What's the difference between the Chicago Board of Trade (CBOT) and the Chicago Mercantile ...

    Read about the CBOT and Mercantile exchanges; both are futures exchanges that offer different futures contracts and specialize ... Read Answer >>
  5. Why do insurance policies have deductibles?

    Learn the basic concept of an insurance deductible and why they mitigate moral hazards and provide financial viability to ... Read Answer >>
  6. What do the S&P, Dow and Nasdaq futures contracts represent?

    Every morning before North American stock exchanges begin trading, TV programs and websites providing financial information ... Read Answer >>
Hot Definitions
  1. Duration

    A measure of the sensitivity of the price (the value of principal) of a fixed-income investment to a change in interest rates. ...
  2. Dove

    An economic policy advisor who promotes monetary policies that involve the maintenance of low interest rates, believing that ...
  3. Cyclical Stock

    An equity security whose price is affected by ups and downs in the overall economy. Cyclical stocks typically relate to companies ...
  4. Front Running

    The unethical practice of a broker trading an equity based on information from the analyst department before his or her clients ...
  5. After-Hours Trading - AHT

    Trading after regular trading hours on the major exchanges. The increasing popularity of electronic communication networks ...
  6. Omnibus Account

    An account between two futures merchants (brokers). It involves the transaction of individual accounts which are combined ...
Trading Center