cat spread

Definition

A type of call option that is traded on the Chicago Board of Trade (CBOT) which takes the form of an option for catastrophe futures contract. A cat spread is utilized by insurance companies to hedge their risk coverage of catastrophic events. To purchase a cat spread, it requires selling or buying a call option where the underlying asset is a catastrophe contract while at the same time selling or buying the same number of call options at a higher strike price.
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CAT bond CAT standards