Exploiting ELF price discrepancies and Trading ELF Spreads

Exploiting price discrepancies.

• Protection Buyers and/or Sellers will be able to exploit occasional price anomalies. An example is the pricing of traditional reinsurance after the 2005 Hurricane Katrina.
  
  
• Because trading IFEX ELF contracts have lower transaction costs compared to the alternatives they are the ideal means of exploiting such perceived price discrepancies.
  
  
• For example, if the 2010 $20bn IFEX ELF US Tropical Wind is at a price materially higher than that indictated by exceedance probabilities it becomes attractive to sell such contracts.
  
  
• Alternatively, at another stage of the pricing cycle, the price might be materially below that indicated by the exceedance probability suffice to justify buying such contracts.

Trading ELF Spreads

• Currently, IFEX  lists US Tropical Wind ELFs for two loss periods and First, Second, Third and Fourth Events.
  
  
• This array of Events, Loss Trigger Levels and loss periods may thow up pricing discrepancies and hence opportunities for trading.