CAT BONDS.
CAT BONDS. This article by Michael Lewis (author of MONEYBALL) will disappear soon. Kids, I suggest your read it while you have the chance. Lewis describes catastrophe bonds (“cat bonds” for short). If you were to buy a catastrophe bond for a million dollars which is triggered by a hurricane hitting Miami some time in the next five years, and no hurricanes hit Miami during that period, you would get your million dollars back at the end of five years and would have collected a high rate of interest during the period (a high rate of interest to compensate for the risk you ran). If there were a Miami hurricane during the period, you might get only some of your million dollars back. If the hurricane were bad enough, you would get nothing back at the end of five years. Insurance companies that insure against rare events with enormous damage will sell cat bonds to spread their risk. The market has taken off since Hurricane Katrina.