The city you work for is worried about overtime for snowplow drivers if there is a...

 

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The city you work for is worried about overtime for snowplow drivers if there is a really large snowstorm. You estimate that the city will spend $1,000 in overtime for every inch of snow above 12 inches. You suggest buying parametric insurance to hedge this risk. The policy states that the insurance company will pay $1,527 for every inch of snow above 24 inches. Next year, the total snow amount is 47. What is your city's hedged position? The city you work for is worried about overtime for snowplow drivers if there is a really large snowstorm. You estimate that the city will spend $1,000 in overtime for every inch of snow above 12 inches. You suggest buying parametric insurance to hedge this risk. The policy states that the insurance company will pay $1,527 for every inch of snow above 24 inches. Next year, the total snow amount is 47. What is your city's hedged position?

Answer rating: 100% (QA)

To calculate the citys hedged position we need to determine the snow amount above which the parametr... View the full answer