Patent ID: 7337122

Claim:
A method for generating an insurance premium and hedge amount for event risk insurance for a commodity, the method comprising the steps of: receiving a price scenario input; receiving an event risk scenario input; calculating insurance payouts; calculating daily call payouts; and calculating statistics of insurance payout obligations P as a function of the hedge amount x and the insurance premium A, where P is calculated using the following equation: P (dollars)= I (dollars)+χ(megawatt)× C (dollars/megawatt)− A (dollars)−16hours×N×χ(megawatt)× C P (dollar/megawatt-hours), and where I is the insurance payouts (dollars); C is the daily call payouts (dollars/megawatt); χ is the hedge amount (megawatt); A is the insurance premium (dollars); N is the number of on-peak days; and C P is the price paid for the daily call (dollars/megawatt-hour); selecting an insurance premium and a hedge amount in response to receiving the price scenario input and the event risk scenario input and based on a selected target value for one or more of the statistics of P; and applying the selected insurance premiums and hedge amounts in the provision of commodity insurance for the development of a portfolio in the commodity market.