There are a vast number of use cases here. A simple one is the peak mortgage rate market[1]. That allows you to create hedges against movement on variable rate homeloans directly.
There's a number of unemployment-related markets that allow you to create insurance for yourself against unemployment.
And these are just things I've thought up of in a couple of minutes, not even considering what actual financial markets might want to use them for.
That's neat but how does one hedge a $800k loan with a max position of $25k? Idea seems spurious. The difference is substantially higher. Compare a pre-hike 2.8% with a present 6.8%. Your $25k hedge is going to be pointless.
It's 25k downside exposure limit (doesn't mean your upside is capped at 25k).
Also even if you can't hedge the exposure in its totality, it is still worth hedging a fraction of it. "Under-hedging" is a common term in commodities markets - people often want to cover a portion of their exposure and leave the rest in the hands of mother nature.
