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Eurex to launch hurricane futures

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The international derivatives exchange Eurex will launch hurricane futures with binary payouts on 29 June 2009.

The international derivatives exchange Eurex will launch hurricane futures with binary payouts on 29 June 2009.

Hurricane futures will provide users, such as asset managers, hedge funds, banks and (re)-insurance companies, with an opportunity to trade or hedge against insured losses related to specific storm events.

Hurricane insured losses are largely uncorrelated to financial market returns.

Peter Reitz, member of the Eurex Executive Board, says: ‘We are very pleased to be the first European exchange to offer hurricane futures to our customers. The current financial crisis has led to a re-evaluation of counterparty risk, creating demand for centrally cleared hurricane contracts to complement currently bilaterally executed ISDA documented hurricane swaps. Our new offering will foster this need by offering central clearing services through Eurex Clearing which brings effective risk management to the market and mitigates counterparty risks. Further we bring in the traditional benefits of listed futures such as standardization and anonymity as well as Eurex’s global distribution capability.’

Futures will be initially available for three regional areas, US nationwide, Florida and the Gulf coast states, and will be denominated in US dollar.

Additionally, they will have several trigger levels, ranging from USD10bn to USD50bn.

Due to the nature of the underlying, the new binary contracts will expire either worthless or at USD10,000 per contract depending on the estimated insurance loss caused by a single hurricane.

The minimum tick size will be USD10.

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