Quantcast

Catastrophe bond

Definition:

Also known as cat bonds, these are used as a way for insurance agents to transfer risks to investors. They are often attractive to investors because the risks (like that of an earthquake) are uncorrelated with the business cycle — and, hence, provide natural diversification. Cat bond is typically structured so that if a major natural catastrophe hits, the principal initially paid by the investors is forgiven and used by the sponsor (the insurer) to pay its claims to policyholders.

Investing Essentials


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

Term of the Day

Options Clearing Corporation (OCC)

Applies to derivative products. Financial institution that is the actual issuer and guarantor of all listed option contracts.

Subscribe to the Term of the Day via email Get the Term of the Day in your inbox!





Create your free portfolio




Investing Tools

stock screener icon
Stock Screener

Find opportunities in the market using criteria based on 145 data elements.

portfolio tracker icon
Portfolio Tracker

Create a portfolio of selected assets that are updated dynamically intraday.

guru icon
Guru

Evaluate stocks that meet the investment criteria of the greatest investors.