After your Weather Index has been created, the payout of the contract will depend on the Payout Scheme chosen. Here are the payout schemes, with explanations and examples:

Incremental Payout per Tick: With this payout scheme, the payout of the contract grows incrementally with the Weather Index. You choose a payment increment (the Payment per Tick) and the number of ticks before the contract begins to pay out (commonly referred to as the strike). The strike value can be thought of as a tolerance level. Increasing the strike will help to decrease the upfront cost of the contract. What a "tick" means depends on your choice of Daily Values. A "tick" can represent one day (as in a cold day or rainy day), one inch/cm/mm of precipitation, or one degree Celsius/Fahrenheit. All of the contracts on our simple contracts pricing page have a tick of one day. For contracts with a Daily Value choice of "Measurement above Threshold" or "Measurement below Threshold", a tick represents either one degree or one inch of rain.

The payout of a contract with this payout scheme is calculated by first comparing the Weather Index to the strike. If the Weather Index is larger than the strike, the contract pays out the payment per tick multipled by the difference between the Weather Index and the strike. If the Weather Index is not larger than the strike, the contract does not pay out at all. Contracts using this payout scheme are subject to a Maximum Possible payout. You can select any maximum payout you want, up to $50,000,000.

Binary Payout if Above Threshold: With this payout scheme, you choose a Payout Amount and a Binary threshold (commonly referred to as the strike). The contract pays a lump sum only if the Weather Index strictly exceeds the strike. If the Weather Index is less than or equal to the strike, the contract pays nothing.

Binary Payout if Below Threshold: With this payout scheme, you choose a Payout Amount and a Binary threshold (commonly referred to as the strike). The contract pays a lump sum only if the Weather Index is strictly below the strike value. If the Weather Index is greater than or equal to the strike, the contract pays nothing.

Examples:

Let's look at some examples to see how different payout schemes can affect the payout for the same Weather Index. Let's suppose that we have calculated a Weather Index of 23, and our payment increment is $100.

Payout Scheme: Incremental Payout with a maximum of $2000
Threshold (strike) Value: 12
The Weather Index value of 23 is larger than the strike, so the contract will pay out. The payout is $100 x (23 - 12) = $1100.

Payout Scheme: Incremental Payout with a maximum of $700
Threshold (strike) Value: 12
The Weather Index value of 23 is larger than the strike, so the contract will pay out. The payout would be $100 x (23 - 12) = $1100, but this is larger than the maximum possible payout of $700, so the payout is $700.

Payout Scheme: Binary Payout above threshold
Threshold (strike) Value: 12
The Weather Index value of 23 is larger than the strike, so the contract will pay out a lump sum of $100.

Payout Scheme: Binary Payout above threshold
Threshold (strike) Value: 23
The Weather Index value of 23 is not stricly larger than the strike, so the contract will not pay out.

Payout Scheme: Binary Payout below threshold
Threshold (strike) Value: 30
The Weather Index value of 23 is stricly smaller than the strike, so the contract will pay out a lump sum of $100.