Method for producing a superior insurance model for commodity event risk

• US 20040138927A1
• Filed: 01/14/2003
• Published: 07/15/2004
• Est. Priority Date: 01/14/2003
• Status: Active Grant

• Current Assignee: Mirant Intellectual Asset Management and Marketing
• Original Assignee: Mirant Intellectual Asset Management and Marketing
• Inventors: Eydeland, Alexander, MacKenzie, David B., Mahoney, Daniel J.
• Granted Patent: US 7,337,122 B2
• Time in Patent Office: Days
• US Class Current: 705/4
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A method for producing an insurance model includes the steps of calculating insurance payouts, calculating daily call payouts, calculating statistics of insurance payout obligations, selecting an insurance premium, and selecting a hedge amount. One aspect of the present invention is to determine a combination of insurance premium to charge and a hedge amount to place using daily calls, or other such financial instruments, such that some measure of return of the total portfolio of the insurance policy meets some maximum or minimum criteria.

Claims

1. A method for generating an insurance premium and hedge amount for event risk insurance for a commodity, the method comprising the steps of:

receiving a price scenario input;

receiving an event risk scenario input; and

generating an insurance premium and a hedge amount in response to receiving the price scenario input and the event risk scenario input.

2. The method of claim 1, further comprising the steps of:

calculating insurance payouts;

calculating daily call payouts; and

calculating statistics of insurance payout obligations.

3. The method of claim 2, wherein the step of calculating insurance payouts further comprises the steps of:

calculating a total loss for a first event risk; and

calculating a potential insurance payout by subtracting an event deductible from the total loss for the first event risk.

4. The method of claim 3, wherein the step of calculating insurance payouts further comprises the step of:

calculating an insurance payout by limiting the potential insurance payout to a maximum insurance payout.

5. The method of claim 3, wherein the step of calculating insurance payouts further comprises the steps of:

calculating the total loss for a subsequent event risk, wherein one or more prior event risks have occurred;

calculating a subsequent event risk deductible by subtracting the total of deductibles paid for prior event risks during a period from a maximum period deductible;

calculating a potential insurance payout by subtracting the subsequent event deductible from the total loss for the subsequent event risk; and

calculating an insurance payout by limiting the potential insurance payout to a maximum insurance payout.

6. The method of claim 2, wherein the step of calculating insurance payouts incorporates dollar and megawatt deductibles and maximum payouts.

7. The method of claim 2, wherein the step of calculating statistics of insurance payout obligations is performed by examining the statistics of:

P=I+x×

C−

A−

16×

N×

x×

C_p.

8. The method of claim 7, wherein the step of selecting an insurance premium is performed using the statistics examined in the step of calculating statistics of insurance payout obligations.

9. The method of claim 2, wherein the step of selecting an insurance premium comprises the steps of:

picking a measure of desired performance; and

calculating a minimum premium that will achieve a desired ratio.

10. A method for generating an insurance premium and hedge amount for forced outage insurance for electric power, the method comprising the steps of:

receiving a price scenario input;

receiving a unit outage scenario input; and

generating an insurance premium and a hedge amount in response to receiving the price scenario input and the unit outage scenario input.

11. The method of claim 10, further comprising the steps of:

calculating insurance payouts;

calculating daily call payouts; and

calculating statistics of insurance payout obligations.

12. The method of claim 11, wherein the step of calculating insurance payouts further comprises the steps of:

calculating a total loss for a first forced outage event; and

calculating a potential insurance payout by subtracting an event deductible from the total loss for the first forced outage event.

13. The method of claim 12, wherein the step of calculating insurance payouts further comprises the step of:

calculating an insurance payout by limiting the potential insurance payout to a maximum insurance payout.

14. The method of claim 12, wherein the step of calculating insurance payouts further comprises the steps of:

calculating the total loss for a subsequent forced outage event, wherein one or more prior forced outage events have occurred;

calculating a subsequent forced outage event deductible by subtracting the total of deductibles paid for prior forced outage events during a period from a maximum period deductible;

calculating a potential insurance payout by subtracting the subsequent event deductible from the total loss for the subsequent forced outage event; and

calculating an insurance payout by limiting the potential insurance payout to a maximum insurance payout.

15. The method of claim 11, wherein the step of calculating insurance payouts incorporates dollar and megawatt deductibles and maximum payouts.

16. The method of claim 11, wherein the step of calculating statistics of insurance payout obligations is performed by examining the statistics of:

P=I+x×

C−

A−

16×

N×

x×

C_p.

17. The method of claim 16, wherein the step of selecting an insurance premium is performed using the statistics examined in the step of calculating statistics of insurance payout obligations.

18. The method of claim 11, wherein the step of selecting an insurance premium comprises the steps of:

picking a measure of desired performance; and

calculating a minimum premium that will achieve a desired ratio.

19. A forced outage insurance model, comprising:

a price scenario input;

a unit outage scenario input; and

in response to receiving price scenarios and unit outage scenarios, being operative to;

generate an insurance premium; and

generate a hedge amount.