In modern finance, you can hedge against anything.

But the market for hedging against alien invasions is pretty thin.

Marginal Revolution's Tyler Cowen pointed us to an interesting proposal addressing the matter.

In an article for the Journal of the British Interplanetary Society, Jacob Haqq-Misra of the Blue Marble Space Institute of Science proposes a novel way to insure against the coming close encounter, while also helping fund the search for extraterrestrial intelligence.

He proposes a bond which pays out when extraterrestrial life is proved to exist by researchers on earth. It would be a "lottery bond," which is a security usually issued to fund projects when the issuer foresees low demand for the bonds. In order to drum up demand, some randomly selected bonds within the issue are redeemed at a higher value than the face value of the bond once the project is completed; this enhances the value of the bond.

All of the bonds get a regular, but low coupon payment, and once the project is completed, the holders of the "lucky" bonds get a high payout, while everyone else gets less or nothing.

According to Haqq-Misra's paper:

"I propose the establishment of a SETI Lottery Bond to provide a continued source of funding for the search for extraterrestrial intelligence (SETI). The SETI Lottery Bond is a ﬁxed rate perpetual bond with a lottery at maturity, where maturity occurs only upon discovery and conﬁrmation of extraterrestrial intelligent life. Investors in the SETI Lottery Bond purchase shares that yield a ﬁxed rate of interest that continues indeﬁnitely until SETI succeeds—at which point a random subset of shares will be awarded a prize from a lottery pool. SETI Lottery Bond shares also are transferable, so that investors can benefact their shares to kin or trade them in secondary markets. The total capital raised this way will provide a fund to be managed by a ﬁnancial institution, with annual payments from this fund to support SETI research, pay investor interest, and contribute to the lottery fund. Such a plan could generate several to tens of millions of dollars for SETI research each year, which would help to revitalize and expand facilities such as the Allen Telescope Array."

What makes these bonds unusual is that they assert with certainty that we will find alien life in the future. The probability of this occuring is determined by the Drake equation, an equation that tries to determine the probability of finding alien life in a galaxy, depending on several factors including the number of planets it has and the average rate of star formation. According to this, the Milky Way probably has about 12,000 alien civilizations.

Given our current zero knowledge about alien life, these lottery bonds would probably be a hard sell, but they're a fun way to help underfunded space research. And if we do end up finding a hostile alien civillization- you' or your descendants will be able to cash out big time.