Tyler Coughlan, Chapter 7, Question #6

A passage that I found interesting was hedging risk. I always wondered what insurance companies did during a hurricane that takes at many houses in a small area that the insurance company covers. They do it with catastrophe bonds and if the hurricane barely affects homes those bond holders will get a nice return. So both the insurance company and bond holders are dealing with risk and trying to have a safe guard on case bad things happen but still taking risks because they can turn out to be good. The World Cup Federation also bought a cancellation bond in case of a terrorist attack or natural disaster. Both companies are hedging their risk.