An Asteroid Strike Swap?

Something a little less ordinary for the finance geeks:

I was sitting in a talk about detection and prevention of asteroid
strikes this morning when the speaker mentioned that it would cost
around 300 million Dollars to launch a kinetic energy deflection mission
(basically the spacecraft or something carried by it smashes into the
asteroid at a high velocity in order to change its trajectory).

They seemed to think 300 million wasn't much, but it got me to
wondering about financing such a mussion.

Obviously in any single year, the odds on the Earth being hit by an
asteroid big enough to cause great damage are very small. I started
thinking about credit default swaps where the holder of the swap is paid
an annual income and contracts to pay out a certain sum if a named
company goes bust, with the company usually having a small probability
of actually going bust.

What I was thinking is would it be possible to set up what was
functionally an asteroid strike swap? For example a contract which would
pay out half a billion Dollars when such and such a committee stated
that the probability of a particular asteroid greater than a certain
size hitting the Earth had reached 1 in 10 (the trigger point for
sending a deflection mission would most likely be less than certainty).

Is there a formula for pricing such contracts (I.E compute a ballpark
annual premium)? Say the probability of this being triggered in any one
year were 1 in a million, how would a rough price be worked out?

FoFP

In article ,
M Holmes wrote:
Is there a formula for pricing such contracts (I.E compute a ballpark
annual premium)? Say the probability of this being triggered in any one
year were 1 in a million, how would a rough price be worked out?

I don't think it makes any sense to do such things for such low
probabilities. Insurance companies work because the actual cost is
close to the expected cost over a reasonable timescale (a year say).
To make a single one-in-a-million chance work like that, the timescale
would be millions of years.

To put it another way: from the point of view of any person's
lifetime, the probability is zero. They can take the premium and not
worry about ever having to pay. It would only work on a galactic
scale, where millions of worlds would be paying you premiums and you'd
be paying out on a few asteroids a year.

From a mathematical point of view, the relevant theorems are the
(strong and weak) laws of large numbers: these effectively say that
over a sufficiently long period the law of averages applies. But the
"sufficiently long period" here exceeds the lifetime of people or
companies.

-- Richard

--
"Consideration shall be given to the need for as many as 32 characters
in some alphabets" - X3.4, 1963.