Hedge fund paid terminally ill people to sign up for “death puts”
“They presumably did some actuarial calculations about how many people would die and how much it would cost them in death puts. And those calculations were presumably based on, you know, normal people. They didn’t assume that everyone buying their bonds would have months to live, or that they’d be funded by a secretive hedge fund trying to profit from inefficiencies in the price of death. If they had, they’d have priced the survivor option differently, or not offered it at all, and its insurance function for regular people would be lost. A survivor option priced correctly for death-put arbitrageurs would lose its insurance function for the rest of us. A world where ruthless hedge funds can profit from death options is a world where no one else can.”
A “death put” on a certificate of deposit means that the bond matures immediately upon the bearer’s death, rather than when its term runs out: they’re used as a form of life…
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