The buyers happily pay a tad more to get what they want, which translates into a better deal for the borrowers. Far from Wall Street, in Minnetonka, Minn., financial engineers at Cargill Inc. are transforming the markets for stuff like eggs and sugar. It erases most of its own exposure to a spike in egg prices by artfully combining various financial instruments. The products that we're preaching about today are going to get much more widely and robustly used five years from now,'' says David E. Dines, vice-president for commodity risk management products. Another promising innovation is ''live cat,'' short for live catastrophe coverage.
Option prices change from moment to moment, right along with the wind-speed gauges.
If the storm is bad, profits from the options help cover claims payments. If you need to sell at the bottom, you could suffer a huge loss. If they do, the profit you make on the option will compensate for the loss in value of your house. If prices rise, on the other hand, the put option will expire worthless. But you won't care, assuming that your house's price appreciates in line with its neighbors.