Method for Using Options on Housing Futures Contracts to Offer Home Price Insurance

• US 20070271163A1
• Filed: 05/21/2006
• Published: 11/22/2007
• Est. Priority Date: 05/21/2006
• Status: Abandoned Application

• Current Assignee: Bradley John Schaufenbuel
• Original Assignee: Bradley John Schaufenbuel
• Inventors: Schaufenbuel, Bradley John
• Application Number:
  US11/419,502
• Publication Number:
  US 20070271163A1
• Time in Patent Office: Days
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A home price insurance policy offers a homeowner the ability to insure himself or herself against losses incurred due to falling home prices between the time the policy is purchased and the time the insured'"'"'s home is sold (if the policy is still in effect). In order to offer such a policy at an affordable premium, an insurer must be able to minimize its losses (claims paid) should the risk event (prices are lower when the home is sold and the policy is in effect) crystallizes. This invention provides a method for using put options on housing futures contracts to price a home price insurance policy appropriately today and hedge claims risks in the future.

Claims

1. A method for using options on housing futures contracts to determine the premium an insurer will quote its customer that is comprised of the following steps:

(a) Using the inputs of a potential customer'"'"'s current home value, term of policy, and location of home, an insurer prices put options on housing futures contracts in the same metropolitan area and with the with the same duration and value;

(b) The insurer then adds desired profit and estimated overhead expenses to the cost of the options on housing futures contracts to determine the premium to be charged to the customer.

2. A method for using put options on housing futures contracts to hedge the claims risk of a home price insurance policy that is comprised of the following steps:

(a) If the customer purchases the home price insurance policy, the insurer actually purchases the put options on housing futures contracts that were priced to determine the premium in claim 1;

(b) If the housing price index for the metropolitan area covered increases or remains the same during the term of the policy, the insured is entitled to no claims and the insurer allows the put options on housing futures contracts to expire worthless;

(c) If the housing price index for the metropolitan area covered decreases and the house is sold during the term of policy, the insurer will either sell the put options on housing futures contracts or exercise them and utilize the profits to pay the insured'"'"'s claims.