A SYSTEM AND METHOD OF UNDERWRITING PRICE RISK WITH AND INSURED WINDOW CONTRACT

摘要

The invention embodies a system and method of underwriting price risk with aninsured window contract. The system and method has application in anymarketplacewhere there is a transparent price that exhibits volatility over time. It isapplicable toboth buyers and sellers facing price risk in the marketplace. A window isestablishedwhich specifies a minimum and maximum price. Market prices outside the windowresult in a deposit to or withdrawl from a trust account fully owned by theparticipantin the insured window contract. The trust account is established to holdsurplusesand deficits over the life of the contract, normally of multi-period duration.Anoperating account, also fully owned by the participant, is also established toserve asthe participant's operational account and to receive monies from and transfermoniesto the trust account. On the buyer side, market prices below the window causemoniesequal to the difference between market price and minimum of the window to betransferred from the operational account to the trust account, whereas marketpricesabove the window cause monies equal to the difference between the market priceandmaximum of the window to be transferred from the trust account to theoperationalaccount. On the seller side, market prices below the window cause monies equaltothe difference between market price and minimum of the window to betransferredfrom the trust account to the operational account, whereas market prices abovethewindow cause monies equal to the difference between the market price andmaximumof the window to be transferred from the operational account to the trustaccount.Surpluses or deficits accrue in the trust account over the duration of thecontract.At contract expiry, surpluses are transferred to the operational account tobring thetrust account to a zero balance. At contract expiry, deficits are indemnifiedby apre--arranged insurance policy above some retention of risk (deductible) alsoto bring thetrust account to a zero balance. The insurance policy is put in place at theoutset ofthe contract and comes with consideration in the form of payment of a premium.Thepremium may be financed with a repayment scheme structured over the life ofthecontract. Arrangement for contingent financing of the deficit is also arrangedat theoutset of the contract. The finacier's interests are secured by the insurancepolicy'sguarantee of indemnification at the contract's expiry should there be adeficit at thattime.