2006 Hurricane Risk

SUBJECT AREAS: Insurance, Investment management, Personal finance, Risk, Risk management.In May 2006, a resident of Key West, FL had to decide whether to renew his policy to insure against hurricane damage. The policy would cost $13,000 for one year, $5,000 more than what he paid in 2005. At the same time, a wealthy California resident was contemplating an opportunity to buy a quot;cat notequot; that offered a high yield, but with a chance of losing the full investment if severe hurricanes struck the coastline of the United States