Parametric Index Payout

Calculate a parametric payout from a caller-defined trigger and cap.

Description

A parametric payout depends on how far an observed index moves beyond a selected trigger.

A parametric payout depends on how far an observed index moves beyond a selected trigger. This model pays a linear amount up to a cap.^[1]

Calculate a parametric payout from a caller-defined trigger and cap.

When to use Parametric Index Payout

Use this tool to calculate a parametric payout from a caller-defined trigger and cap.

Prepare the supplied policy terms, dates, assumptions or recorded indicators requested. Keep monetary amounts on one currency basis and select the applicable thresholds separately.

How to use Parametric Index Payout and understand its results

Prepare the supplied policy terms, dates, assumptions or recorded indicators requested. Keep monetary amounts on one currency basis and select the applicable thresholds separately.
Enter observedIndex, triggerIndex, payoutPerIndexUnit, maximumPayout, triggerDirection using the field table and calculation rules, then run the tool.
Read triggerMagnitude, payout, triggered. The explanation below defines the units, signs, ordering and any flags or placeholder values.
If the tool reports an input issue, correct the values and run it again. Apply the stated assumptions when interpreting a successfully returned result.

Input field	Meaning	Value type; see rules below	Requirement
observedIndex	Observed index	number	Required
triggerIndex	Trigger index	number	Required
payoutPerIndexUnit	Payout per index unit (currency)	number; minimum: 0	Required
maximumPayout	Maximum payout (currency)	number; minimum: 0	Required
triggerDirection	Trigger direction	string; one of "above", "below"	Required

Enter finite index values, direction above or below, nonnegative payout/unit and cap. Return magnitude, min(cap,magnitude×rate) and strict magnitude>0 flag. Equality is untriggered; a positive magnitude can still pay zero.

magnitude=max(0,observed−trigger) above, or max(0,trigger−observed) below

Units, indexing, boundary conditions and exceptional cases are defined in the calculation rules above.

Output field	Meaning	Value type
triggerMagnitude	Trigger magnitude	number; minimum: 0
payout	Payout (currency)	number; minimum: 0
triggered	Triggered	boolean

json

{
  "input": {
    "observedIndex": 120,
    "triggerIndex": 100,
    "payoutPerIndexUnit": 1000,
    "maximumPayout": 50000,
    "triggerDirection": "above"
  },
  "output": {
    "triggerMagnitude": 20,
    "payout": 20000,
    "triggered": true
  }
}

Limitations and assumptions

No index is fetched, insured loss measured or contract terms validated. Basis risk and non-linear schedules are not modeled.

Numeric inputs must be finite. Follow the calculation-specific rules for overflow, underflow and exceptional cases. Extremely large text inputs are rejected. Missing required fields, extra fields, wrong value types and violations of the calculation rules are input errors. A successfully returned false flag is an evaluated outcome; its meaning is explained above.

Alternative or Complementary methods

Use Crop Protection Comparison: Compare modeled crop yield and revenue protection indemnities. For a complementary task, use Climate Materiality Screen: Screen climate exposure for financial and impact materiality.

References

Parametric Index Payout — tool.io

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