An option that a corporation issues, with its own shares as the underlying asset. The crucial implication is that exercise of the option changes the number of claims against the corporation’s assets. Thus, the pricing equations for Call (Put) Warrants and ordinary Call (Put) Options differ by the dilution (antidilution) effect. Empirically, warrants are options with a long time to expiration, which may be several or many years, or even decades or an infinite time. An option on asset A that party B issues and lists on an exchange. Party B might a corporation, a government, etc. Endowment Warrants. Installment Warrants.

Weather derivatives

Definition: Derivative products whose values depend on risky weather variables, such as temperature, precipitation, or dollar damage from extreme weather.
Example: Options on heating or cooling degree days, hurricane-based catastrophe bonds.
Application: An insurer or reinsurer who wanted to lay of f some risk in the capital markets might issue a bond that repaid principal as a function of the loss rate for Florida East Gulf Coast property casualty rates.
Pricing of Weather derivatives: The pricing models are sensitive to assumptions, as usual. Historical results depend on the historical period. With global warming and El Nino, pricing isn’t simple.
Risk Management: Catastrophe contracts are simple ways of laying off weather risk.


World Equity Benchmark Shares

When Issued Market

The market for forthcoming On-the-Run securities.


A brand of listed security representing a claim against a share or basket of shares. A widget with an underlying index or basket is comparable to SPDRS or WEBS listed on the American Stock Exchange, but can have a different underlying portfolio. A widget with an underlying share is comparable to an ADR. W.I. Carr Indosuez of Hong Kong created and listed widgets on the Luxembourg Stock Exchange. (Rachel Horsewood, “What’s in a Name – Introducing the Widget,” AsiaRisk, August 1997.) The main advantage is reducing the transaction cost for investing in a basket of shares.

World Equity Benchmark Shares

Each WEBS share is a claim on a portfolio of publicly traded shares in a particular country. That portfolio corresponds more or less to the MSCI portfolio for that country. All WEBS shares are listed on the American Stock Exchange and trade in dollars. Roughly speaking, each WEBS is to an MSCI Indexes of foreign stocks what Spiders are to the S&P 500 Index of U.S. stocks.

Foreign Fund, Inc. issues all WEBS shares. Any investor can create (redeem) a “Creation Unit” – i.e., a fixed number – of WEBS shares by depositing the appropriate underlying shares, plus cash expenses (WEBS shares) with an “Authorized Participant” in exchange for WEBS shares (underlying shares, less cash expenses). That makes a WEBS share like a share in an open end investment company (mutual fund).

WEBS are listed and trade exactly like shares in a closed end fund and other ordinary shares. A trader can sell them whenever the American Exchange is open, and can sell them short. However, it is possible to create or redeem shares continuously, as with mutual fund shares.

Any of the underlying shares may pay a dividend. The country that is the source of dividends for the underlying shares of WEBS may withhhold dividend income. Foreign Fund, Inc. retains dividend income temporarily, deducts expenses, and distributes the remainder at least each year.

The I.R.S. treats dividends and capital gains in a manner similar to the way it treats them for a mutual fund holding foreign shares.

WEBS and a competitive family of international mutual funds, CountryBaskets hit the market in the first half of March, 1996. (Peter C. Du Boi, “Deutsche Bank, Morgan Stanley Offer Ways to Play Foreign Indexes on U.S. Exchanges,” Barron’s, 3/11/96.) Apparently, WEBS won the battle in the marketplace, and Deutsche Morgan Grenfell plans to dissolve the CountryBasket funds in March, 1997.

Worst-of-Two Option

A payoff which equals the minimum of two option payoffs, such as the minimum of a call on asset 1 and a put on asset two.

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