Mid Ocean Limited:  Trading Catastrophe Index Options

Kenneth A. Froot; Markus   Mullarkey

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Case | HBS Case Collection | December 1997 (Revised March 1998)

Mid Ocean Limited: Trading Catastrophe Index Options

by Kenneth A. Froot and Markus Mullarkey

Abstract

An insurance industry executive must evaluate the potential of a set of newly-offered catastrophe insurance derivatives. The background addresses the roles of traditional reinsurance and securitization efforts in providing risk transfer and risk financing in the "cat" insurance field. The benefits and difficulties involved in commoditizing a new asset class are explored as well.

Keywords: commodity market; derivatives; Insurance; Capital Markets; Natural Disasters; Risk Management; Financial Management; Financial Strategy; Performance Evaluation; Insurance Industry; Bermuda;

Format: Print

20 pages

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Citation:

Froot, Kenneth A., and Markus Mullarkey. "Mid Ocean Limited: Trading Catastrophe Index Options." Harvard Business School Case 298-073, December 1997. (Revised March 1998.)

About the Author

Kenneth A. Froot

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Article | Journal of Financial Economics | July 2017

What Do Measures of Real-Time Corporate Sales Tell Us About Earnings Surprises and Post-announcement Returns?

Kenneth A. Froot, Namho Kang, Gideon Ozik and Ronnie Sadka

We develop real-time proxies of retail corporate sales from multiple sources, including approximately 50 million mobile devices. These measures contain information from both the earnings quarter (within quarter) and the period between that quarter's end and the earnings announcement date (post quarter). Our within-quarter measure is powerful in explaining quarterly sales growth, revenue surprises, and earnings surprises, generating average excess returns at announcement of 3.4%. However, surprisingly, our post-quarter measure is related negatively to announcement returns and positively to post-announcement returns. When post-quarter private information is directionally strong, managers, at announcement, provide guidance and use language that points statistically in the opposite direction. This effect is more pronounced when, post-announcement, management insiders trade. We conclude managers do not fully disclose their private information and instead message to shareholders and analysts something of opposite sign. The data suggest they may be motivated in part by subsequent personal stock-trading opportunities.

Keywords: Announcements; Business Earnings; Sales; Retail Industry;

Citation:
Froot, Kenneth A., Namho Kang, Gideon Ozik, and Ronnie Sadka. "What Do Measures of Real-Time Corporate Sales Tell Us About Earnings Surprises and Post-announcement Returns?" Journal of Financial Economics 125, no. 1 (July 2017): 143–162. (Revised from NBER Working Paper No. 22366, June 2016, Harvard Business School Working Paper No. 16-123, April 2016.) View Details

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Teaching Note | HBS Case Collection | May 2012 (Revised February 2013)

Innovating into Active ETFs: Factor Funds Capital Management LLC (TN)

Lauren Cohen, Kenneth Froot and Timothy Gray

Citation:
Cohen, Lauren, Kenneth Froot, and Timothy Gray. "Innovating into Active ETFs: Factor Funds Capital Management LLC (TN)." Harvard Business School Teaching Note 212-085, May 2012. (Revised February 2013.) View Details

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Supplement | HBS Case Collection | February 2005 (Revised November 2012)

UAL 2004: Pulling Out of Bankruptcy (CW)

Daniel Baird Bergstresser, Kenneth A. Froot and Darren Robert Smart

UAL is a large air transportation company with roots that go back to the 1920s. As a legacy carrier, going back to before the 1978 deregulation of air transportation markets, United Airlines is burdened with cost structures that make it difficult to compete with newer competitors. In addition, UAL has the burden of $7.6 billion in unfunded pension obligations and $2 billion in unfunded retiree health obligations. In June 2004, UAL is still operating under Chapter 11 bankruptcy protection, which began December 2002. It has needed extensions of the exclusivity period from the bankruptcy court. UAL's plan of reorganization is predicated on receiving $1.8 billion in loan guarantees from the Air Transport Stabilization Board (ATSB). But its request for loan guarantees from the ATSB was recently rejected. The company must decide what to do next and how to emerge from bankruptcy.

Keywords: bankruptcy; compensation; costs; loans; reorganization; Restructuring; Financing and Loans; Insolvency and Bankruptcy; Compensation and Benefits; Air Transportation Industry; United States;

Citation:
Bergstresser, Daniel Baird, Kenneth A. Froot, and Darren Robert Smart. "UAL 2004: Pulling Out of Bankruptcy (CW)." Harvard Business School Spreadsheet Supplement 205-709, February 2005. (Revised November 2012.) View Details

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Mid Ocean Limited: Trading Catastrophe Index Options

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