Insurance Linked Securities transfer a specified set of risks (insurance risks) from a sponsor to investors. ILS have payouts linked to insurance losses and it is an effective way for investors to diversify their portfolio since insurance loss has little correlation with the other financial markets (equity, fixed income). See also Catastrophic Bonds

Investing Essentials

Copyright © 2011 Campbell R. Harvey, Professor of Finance, Fuqua School of Business at Duke University

Term of the Day

Ratio Strategy

A strategy in which one has an unequal number of long secruities and short sercurities. Normally, it implies a preponderance of short options over either long options or long stock.

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