Derivatives having demand-based, adjustable returns, and trading exchange therefor

• US 20030115128A1
• Filed: 04/02/2002
• Published: 06/19/2003
• Est. Priority Date: 07/21/1999
• Status: Active Grant

• Current Assignee: Longitude LLC
• Original Assignee: Longitude LLC
• Inventors: Baron, Kenneth, Lange, Jeffrey
• Granted Patent: US 8,577,778 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 30/08 Auctions
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G07F 7/10 together with a coded signal , e.g. in the form of personal identification information, like personal identification number [PIN] or biometric data
• CPC Class Codes: H01L 21/28061 the conductor comprising a metal or metal silicide formed by deposition, e.g. sputter deposition, i.e. without a silicidation reaction H01L21/28052 takes precedence
• CPC Class Codes: H01L 29/4941 with a barrier layer between the silicon and the metal or metal silicide upper layer, e.g. Silicide/TiN/Polysilicon

Abstract

Methods and systems for replicating derivatives strategies and for trading derivatives strategies in a demand-based trading market are described. In one embodiment, a set of contingent claims are created to replicate a derivatives strategy. One or more parameters of a contingent claim in the replication set may be determined as a function of one or more parameters of a derivatives strategy and an outcome of the event. An investment amount for a contingent claim in the replication set may be determined as a function of one or more parameters of the contingent claim and a total amount invested in a demand-based auction. In other embodiments, derivatives strategies and/or financial products are enabled to be traded in a demand-based auction and are offered to customers and/or traded in the auction. In another embodiment, a derivatives strategy is replicated by a set of one or more digitals or digital options by determining one or more parameters of the digitals or digital options in the replication set as a function of one or more parameters of the derivatives strategy.

Claims

1. A method for conducting a demand-based trading auction on at least one event, comprising:

determining at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of the derivatives strategy and an outcome of the event; and

determining an investment amount for the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction.

2. The method according to claim 1, wherein the contingent claims in the replication set are digital options.

3. The method according to claim 1, wherein the at least one parameter of the derivatives strategy is the derivative payout function.

4. The method according to claim 3, wherein the at least one parameter of the contingent claim is a desired payout and at least one selected state, each selected state being one of a plurality of states, each state corresponding to at least one possible outcome of the event.

5. The method according to claim 4, wherein the contingent claims in the replication set are digitals.

6. The method according to claim 4, further including the step of:

establishing the plurality of states.

7. The method according to claim 6, wherein the total amount invested in the demand-based auction is a total amount invested in the plurality of states in the auction.

8. The method according to claim 6, wherein the step of determining the at least one parameter of the contingent claim, includes:

determining the desired payout and the at least one selected state of the contingent claim in the replication set as a function of the derivative payout function and a conditional expected value of the derivative payout function.

9. The method according to claim 8, further including the step of:

determining a replication return for the replication set as a function of the derivative payout function, a conditional expected value of the derivative payout function, and a possible outcome of the event.

10. The method according to claim 9, wherein the replication return is one of a replication profit and a replication loss.

11. The method according to claim 9, further including the step of:

determining a fee for the derivatives strategy as a function of the replication return.

12. The method according to claim 9, wherein the step of determining the desired payout and the at least one selected state of each contingent claim in the replication set includes:

substantially satisfying a first condition that the replication set has an expected replication return equal to zero.

13. The method according to claim 9, wherein the step of determining the desired payout and the at least one selected state of each contingent claim in the replication set includes:

substantially satisfying a first condition that the replication set has a median replication return equal to zero.

14. The method according to claim 12, wherein the step of determining the desired payout and the at least one selected state of each contingent claim in the replication set includes:

minimizing a variance of the replication return.

15. The method according to claim 14, further including the step of:

determining a fee for the derivatives strategy as a function of the variance of the replication return.

16. The method according to claim 9, wherein the step of determining the replication return includes:

determining an infimum of the replication return as a function of the derivative payout function, an expected value of the derivative payout function, and a possible outcome of the event.

17. The method according to claim 16, further including the step of:

determining a fee for the derivatives strategy as a function of the infimum of the replication return.

18. The method according to claim 8, further including the step of:

determining an investment amount for the derivatives strategy as a function of the investment amounts and the desired payouts of the contingent claims in the replication set.

19. The method according to claim 18, wherein the step of determining the investment amount for the derivatives strategy includes the step of determining the investment amount for the derivatives strategy as a further function of a discount factor.

20. The method according to claim 18, further including the step of:

calculating a price for the derivatives strategy by adding a fee to the investment amount for the derivatives strategy.

21. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a digital option.

22. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a call option.

23. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a put option.

24. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a call spread.

25. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a put spread.

26. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a straddle.

27. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a collared straddle.

28. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a forward.

29. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a collared forward.

30. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a fixed price derivative.

31. The method according to claim 30, wherein the derivative is a digital option.

32. The method according to claim 30, wherein the derivative is a call option.

33. The method according to claim 30, wherein the derivative is a put option.

34. The method according to claim 30, wherein the derivative is a call spread.

35. The method according to claim 30, wherein the derivative is a put spread.

36. The method according to claim 1, wherein the derivatives strategy is a call option with a fixed delta.

37. The method according to claim 1, wherein the derivatives strategy is a put option with a fixed delta.

38. The method according to claim 1, wherein the derivatives strategy includes at least one of purchases and sales of a plurality of derivatives.

39. The method according to claim 38, wherein the derivatives strategy is a butterfly spread.

40. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a derivative.

41. The method according to claim 1, wherein the derivatives strategy is a function of an underlying measurable event of economic significance.

42. The method according to claim 41, wherein the derivatives strategy is one of a quadratic and a higher-powered function of the underlying measurable event.

43. The method according to claim 41, wherein the derivatives strategy is an exponential function of the underlying measurable event.

44. The method according to claim 8, wherein the at least one parameter includes a maximum price for the derivatives strategy.

45. The method according to claim 44, further including the step of:

determining a strike for the derivatives strategy as a function of the maximum price and a requested payout on the derivatives strategy.

46. The method according to claim 45, wherein the step of determining the desired payout and the at least one selected state of each contingent claim in the replication set includes the step of:

determining the desired payout of each contingent claim in the replication set as a further function of the strike for the derivatives strategy.

47. The method according to claim 45, wherein the step of determining the desired payout and the at least one selected state of each contingent claim in the replication set includes the step of:

determining the derivative payout function of the derivatives strategy as a function of the strike for the derivatives strategy.

48. The method according to claim 45, wherein the step of determining the strike includes the step of:

using an iteration technique to determine the strike.

49. The method according to claim 6, wherein the event for the auction is one-dimensional event of economic significance.

50. The method according to claim 49, further including the step of:

selecting at least one measurable parameter of the event for the auction.

51. The method according to claim 50, wherein the step of establishing the plurality of the states includes:

establishing the plurality of states in the auction, each state corresponding to at least one possible outcome of the at least one measurable parameter of the event.

52. The method according to claim 51, wherein the at least one measurable parameter includes a first measurable variable and a second measurable variable of the event.

53. The method according to claim 52, wherein the step of establishing the plurality of states in the auction, each state corresponding to the at least one possible outcome of the at least one measurable parameter of the event, includes the step of:

establishing the plurality of states in the auction, each state corresponding to at least one possible outcome of each measurable parameter, the at least one possible outcome of the first measurable parameter being dependent on the at least one possible outcome of the second measurable parameter.

54. The method according to claim 53, wherein a first measurable parameter depends on the path of a variable of economic significance over a pre-specified time period.

55. The method according to claim 54, wherein the first measurable parameter is a minimum exchange rate of a currency over the pre-specified time period, and the second measurable parameter is a measured exchange rate at an end of the pre-specified time period.

56. The method according to claim 52, further including the step of:

determining the at least one measurable parameter as a function of the first measurable variable.

57. The method according to claim 52, further including the step of:

determining the at least one measurable parameter as a function of the first measurable variable and the second measurable variable.

58. The method according to claim 51, wherein the at least one measurable parameter is a sum of a first measured variable of the event and a second measured variable of the event.

59. The method according to claim 58, wherein the first measured variable is a number of heating degree days in a first month, and the second measured variable is a number of heating degree days in a month adjacent to the first month.

60. The method according to claim 51, wherein the at least one measurable parameter is a difference of a first measured variable of the event from a second measured variable of the event.

61. The method according to claim 60, wherein the first measured variable is a level of target federal funds at an end of a first federal reserve open market committee meeting, and the second measured variable is a level of target federal funds at an end of a subsequent federal reserve open market committee meeting.

62. The method according to claim 60, wherein the first measured variable is an interest rate on a future date for a first instrument with a first maturity term, and the second measured variable is another interest rate on the future date for a second instrument with a second maturity term, the second maturity term being different from the first maturity term.

63. The method according to claim 60, wherein the first measured variable is a yield on a Treasury security on a future date, and the second measured variable is an interest rate on a swap contract on the future date.

64. The method according to claim 51, wherein the at least one measurable parameter is a product of a first measured variable of the event and a second measured variable of the event.

65. The method according to claim 64, wherein the first measured variable is an exchange rate for a first currency, and the second measured variable is an exchange rate for a second currency.

66. The method according to claim 51, wherein the at least one measurable parameter is a quotient of a first measured variable of the event and a second measured variable of the event.

67. The method according to claim 66, wherein the first measured variable is an exchange rate for a first currency, and the second measured variable is an exchange rate for a second currency.

68. The method according to claim 66, wherein the first measured variable is earnings per share of a company, and the second measured variable is a price of an equity share in the company.

69. The method according to claim 49, wherein the event of economic significance for the auction has a plurality of dimensions.

70. The method according to claim 1, wherein the at least one event includes a plurality of events of economic significance.

71. The method according to claim 70, wherein the events of economic significance are unrelated to each other.

72. The method according to claim 70, wherein the events of economic significance are related to each other.

73. The method according to claim 6, further including the step of:

estimating a distribution for the possible outcomes of the at least one event for the auction.

74. The method according to claim 73, wherein the estimating step includes the step of:

fitting a distribution to the possible outcomes of the at least one event.

75. The method according to claim 73, wherein the estimating step includes the step of:

fitting a plurality of distributions to the possible outcomes of the at least one event.

76. The method according to claim 73, wherein the estimating step includes the step of:

selecting a distribution for the at least one event.

77. The method according to claim 76, wherein the selected distribution is a normal distribution.

78. The method according to claim 76, wherein the selected distribution is a log-normal distribution.

79. The method according to claim 76, wherein the selected distribution is a t distribution.

80. The method according to claim 76, wherein the selected distribution is a gamma distribution.

81. The method according to claim 76, wherein the selected distribution is modeled using a GARCH process.

82. The method according to claim 76, wherein the selected distribution is a discretized version of a continuous distribution.

83. The method according to claim 82, wherein the continuous distribution is a normal distribution.

84. The method according to claim 76, wherein the selecting step includes the step of evaluating financial theory.

85. The method according to claim 76, further including the step of:

performing specification tests to determine if the distribution fits historical data for the at least one event.

86. The method according to claim 76, further including the step of:

estimating at least one parameter of the selected distribution.

87. The method according to claim 86, wherein the step of estimating the at least one parameter includes the steps of:

evaluating historical data; and

estimating the at least one parameter using at least one of a moment matching technique and maximum likelihood technique.

88. The method according to claim 86, wherein the step of estimating the at least one parameter includes the step of:

evaluating option prices traded on the at least one event.

89. The method according to claim 86, wherein the step of estimating the at least one parameter includes the step of:

evaluating forecasts provided by at least one of market economists and analysts to determine a mean and standard deviation for the event.

90. The method according to claim 86, wherein the step of estimating the at least one parameter includes the step of:

estimating the at least one parameter of an implied probability distribution of the auction.

91. The method according to claim 86, further including the step of:

determining a quantity of the contingent claims in the replication set.

92. The method according to claim 73, wherein the estimating step includes the step of.

modeling the event with a plurality of parameters.

93. The method according to claim 92, wherein the modeling step includes the step of:

modeling the event with an intrastate uniform model.

94. The method according to claim 92, wherein the modeling step includes the step of:

modeling the event with a global normal distribution model.

95. The method according to claim 73, wherein the estimating step includes the step of:

determining a conditional mean for the event.

96. The method according to claim 8, wherein the step of determining the desired payout and the at least one selected state of each contingent claim in the replication set includes:

determining the desired payout and the at least one selected state of each contingent claim in the replication set for the derivatives strategy as a function of the derivative payout function, the conditional expected value of the derivative payout function, and parameters of at least one additional derivatives strategy, the parameters including a payout function of the at least one additional derivatives strategy and a conditional expected value of the payout function of the at least one additional derivatives strategy.

97. The method according to claim 96, wherein the establishing step includes the step of establishing the plurality of the states in an auction.

98. The method according to claim 97, further including the step of:

determining a replication return for the auction as a function of the derivative payout function of the derivatives strategy, an expected value of the derivative payout function of the derivatives strategy, the payout function of the at least one additional derivatives strategy, an expected value of the payout function of the at least one additional derivatives strategy and a possible outcome of the event.

99. The method according to claim 98, further including the step of:

reducing the replication return for the auction by netting the derivative payout function of the derivatives strategy together with the payout function of the at least one additional derivatives strategy.

100. The method according to claim 98, wherein the step of determining the desired payouts and the selected outcomes of the contingent claims in the replication set includes the step of:

determining a variance of the replication return of the auction.

101. The method according to claim 98, further including the step of:

reducing the variance of the replication return for the auction by netting the derivative payout function of the derivatives strategy together with the payout function of each of the at least one additional derivatives strategy.

102. The method according to claim 98, wherein the step of determining the replication return for the auction includes:

determining an infimum of the replication return as a function of the derivative payout function, the expected value of the derivative payout function, the payout function of the additional derivatives strategy, the expected value of the payout function of the additional derivatives strategy, and the possible outcome of the event.

103. A method for conducting demand-based trading comprising:

enabling at least one of a derivatives strategy and a financial product to be traded in a demand-based auction; and

offering at least one of the enabled derivatives strategy and the enabled financial product to customers.

104. A method for conducting demand-based trading comprising:

enabling at least one of a derivatives strategy and a financial product to be traded in a demand-based auction; and

trading at least one of the enabled derivatives strategy and the enabled financial product in the demand-based auction.

105. A method for conducting derivatives trading on an event, comprising:

receiving an indication of at least one parameter of a derivatives strategy on at least one event of economic significance; and

determining at least one parameter of each digital in a replication set of at least one digital as a function of the at least one parameter of the derivatives strategy.

106. The method for conducting derivatives trading according to claim 105, wherein the determining step includes:

determining a desired payout and at least one selected state of each digital in the replication set as a function of the derivative payout function of the derivatives strategy and an outcome of the event, each selected state being one of a plurality of states, each state corresponding to at least one possible outcome of the event.

107. A method for investing, comprising:

providing to an auction an indication of at least one parameter of a derivatives strategy on at least one event; and

receiving an indication of a price for the derivatives strategy, the price being determined as a function of investment amounts and desired payouts of contingent claims in a replication set of the derivatives strategy;

wherein the investment amounts of the contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and a total amount invested in the auction; and

wherein the desired payouts of contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and an outcome of the event.

108. A computer system for conducting demand-based trading auction, comprising:

at least one processor configured to;

determine at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of the derivatives strategy and an outcome of the event; and

determine an investment amount for the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction.

109. The computer system according to claim 108, further comprising:

at least one database module; and

at least one terminal, the processor being operative with the at least one database module and the at least one terminal.

110. The computer system according to claim 108, wherein the at least one processor includes a first processor and a second processor parallel to the first processor.

111. The computer system according to claim 110, wherein the first processor operates with the second processor, each processor configured to at least one of:

determine at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of the derivatives strategy and an outcome of the event; and

determine an investment amount for the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction.

112. The computer system according to claim 110, wherein the first processor is configured to determine at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of the derivatives strategy and an outcome of the event, and the second processor is configured to determine an investment amount for the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction.

113. The computer system according to claim 109, further comprising:

a server housing the processor and the at least one database module; and

a network connecting the at least one database module and the processor with the at least one terminal.

114. A computer system for determining an investment amount for an order of a derivatives strategy in a demand-based trading auction on an event, comprising:

at least one processor configured to;

receive an indication of at least one parameter of a derivatives strategy; and

determine an investment amount for the order, the investment amount being determined as a function of investment amounts and desired payouts of contingent claims in a replication set of the derivatives strategy;

wherein the investment amounts of the contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and a total amount invested in the auction; and

wherein the desired payouts of contingent claims in the replication set being determined as a function of the at least one parameter of the derivatives strategy and an outcome of the event.

115. A computer system for placing an order to invest in a demand-based trading auction, comprising:

at least one processor configured to;

provide to an auction an indication of at least one parameter of a derivatives strategy on at least one event; and

receive an indication of a price for the derivatives strategy, the price being determined as a function of investment amounts and desired payouts of contingent claims in a replication set of the derivatives strategy;

wherein the investment amounts of the contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and a total amount invested in the auction; and

wherein the desired payouts of contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and an outcome of the event.

116. The computer system according to claim 115, wherein the at least one parameter is a derivative payout function for the derivatives strategy.

117. The computer system according to claim 115, wherein the processor is configured to provide an order for a derivatives strategy including the indication of the at least one parameter.

118. The computer system according to claim 116, wherein the receiving step includes:

determining a total amount invested in each state in a plurality of states for the auction as a function of the derivative payout function, selected outcomes and the desired payouts of the contingent claims in the replication set for the order, and selected outcomes and desired payouts of at least one additional order, each selected outcome corresponding to at least one state in the plurality of states, each state in the plurality of states corresponding to at least one possible outcome of the event.

119. The computer system according to claim 115, wherein the processor is configured to receive the indication of the at least one parameter from a trader.

120. The computer system according to claim 115, wherein the processor is configured to transmit the indication of the at least one parameter to a server through an internet connection.

121. The computer system according to claim 115, wherein the processor is configured to transmit the indication of the at least one parameter to a server through a private network connection.

122. The computer system according to claim 115, wherein the processor is configured to receive the indication of the price from a web site.

123. A method for executing a trade, comprising:

receiving an order, the order including an indication of at least one parameter of a derivatives strategy on at least one event;

determining investment amounts of contingent claims in a replication set of the derivatives strategy as a function of the at least one parameter of the derivatives strategy and a total amount invested in the auction;

determining desired payouts of the contingent claims in the replication set as a function of the at least one parameter of the derivatives strategy and possible outcomes of the event;

determining a price for the order as a function of the investment amounts and the desired payouts of the contingent claims in the replication set of the derivatives strategy;

transmitting an indication of the determined price for the order; and

receiving an indication of a decision to place the order for the determined price.

124. A method for providing financial advice, comprising:

providing a person with advice about an order of one of a purchase and a sale of a derivatives strategy in a demand-based trading auction on at least one event, the order indicating at least one parameter of the derivatives strategy and a price for the order, the price being determined as a function of investment amounts and desired payouts of contingent claims in a replication set of the derivatives strategy;

wherein the investment amounts of the contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and a total amount invested in the auction; and

wherein the desired payouts of contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and an outcome of the event.

125. The method according to claim 124, wherein the derivatives strategy is a call spread, and the order is a purchase of the call spread.

126. A method of hedging comprising:

determining an investment risk in at least one investment; and

reducing the investment risk by taking a position with an opposing risk in a derivatives strategy in a demand-based trading auction on an event, a price for the derivatives strategy being as determined as a function of investment amounts and desired payouts of contingent claims in a replication set of the derivatives strategy;

wherein the investment amounts of the contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and a total amount invested in the auction; and

wherein the desired payouts of contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and an outcome of the event.

127. The method according to claim 126, wherein the offsetting step includes the step of reducing a volatility of the at least one investment by taking the position in the derivatives strategy in the auction with the opposing risk.

128. The method according to claim 127, wherein the reducing step includes the step of determining the position to be taken in the derivatives strategy.

129. The method according to claim 128, wherein the reducing step includes the step of determining a volatility of a portfolio, the portfolio including the at least one investment and the derivatives strategy.

130. A method of speculation comprising:

determining an investment risk in at least one investment; and

increasing the investment risk by taking a position with a similar risk in a derivatives strategy in a demand-based trading auction on an event, a price for the derivatives strategy being determined as a function of investment amounts and desired payouts of contingent claims in a replication set of the derivatives strategy;

wherein the investment amounts of the contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and a total amount invested in the auction; and

wherein the desired payouts of contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and an outcome of the event.

131. The method according to claim 130, wherein the increasing step includes the step of

increasing a volatility of the at least one investment by taking the position in the derivatives strategy in the auction with the similar risk.

132. The method according to claim 131, wherein the increasing step includes the step of

determining the position to be taken in the derivatives strategy.

133. The method according to claim 132, wherein the increasing step includes the step of

determining a volatility of a portfolio, the portfolio including the at least one investment and the derivatives strategy.

134. A computer program product for use with a demand-based trading auction on an event, the computer program product comprising a computer usable medium having computer readable program code embodied in the medium for causing a computer to:

determine at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of the derivatives strategy and an outcome of the event; and

determine an investment amount for the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction.

135. An article of manufacture comprising an information storage medium encoded with a computer-readable data structure adapted for use in placing an order in a demand-based trading auction on an event over the Internet, said data structure comprising:

at least one data field with information identifying a type of derivatives strategy for the order; and

at least one data field with information identifying a price for the order, the price being determined as a function of investment amounts and desired payouts of contingent claims in a replication set of the derivatives strategy;

wherein the investment amounts of the contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and a total amount invested in the auction; and

wherein the desired payouts of contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and an outcome of the event.

136. A derivatives strategy tradeable in a demand-based trading auction comprising:

a designation of at least one parameter of a derivatives strategy on an event; and

an investment amount for the derivatives strategy, the investment amount being dependent upon the first designation, and investment amounts and desired payouts of contingent claims in a replication set of the derivatives strategy;

wherein the investment amounts of the contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and a total amount invested in the auction; and

wherein the desired payouts of contingent claims in the replication set are determined as a function of the at least one parameter of the derivatives strategy and an outcome of the event.

137. A demand-enabled derivatives strategy for trading in a demand-based auction on an event, comprising:

a set of at least one contingent claim, the set approximating a derivatives strategy, each contingent claim in the set having an investment amount and a desired payout, each investment amount being dependent upon at least one parameter of the derivatives strategy and a total amount invested in the auction, and each desired payout being dependent upon at least one parameter of the derivatives strategy and an outcome of the event.

138. The demand-enabled derivatives strategy according to claim 137, wherein the investment amount for each contingent claim is dependent upon a desired payout and a selected outcome of the contingent claim in the set, and upon the total amount invested in the demand-based auction, and wherein at least one of the desired payout and the selected outcome for each contingent claim is dependent upon the at least one parameter of the derivatives strategy.

139. The demand-enabled derivatives strategy according to claim 137, wherein the selected outcome corresponds to at least one of a plurality of states, each state in the plurality of states corresponding to at least one possible outcome of the event.

140. The demand-enabled derivatives strategy according to claim 139, wherein a total amount invested in the auction is a total amount invested in the plurality of states.

141. The demand-enabled derivatives strategy according to claim 137, wherein the derivatives strategy is a purchase of a call option.

142. The demand-enabled derivatives strategy according to claim 137, wherein the derivatives strategy is a spread.

143. An article of manufacture comprising a propagated signal adapted for use in the performance of a method for demand-based trading on an event,

a. the method comprising the steps of:

determining at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of the derivatives strategy and an outcome of the event; and

determining an investment amount for the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction.

b. the signal encoded with machine-readable information relating to a demand-based trade.

144. The article of manufacture according to claim 143, wherein the information includes information relating to the at least one parameter of the derivatives strategy.

145. The article of manufacture according to claim 143, wherein the information includes information relating to the at least one parameter of one of the contingent claims in the replication set.

146. The article of manufacture according to claim 143, wherein the information includes information relating to the investment amount for one of the contingent claims in the replication set.

147. The article of manufacture according to claim 143, wherein the information includes information relating to an identity of a trader.

148. The article of manufacture according to claim 143, wherein the method includes the step of:

determining the price of the derivatives strategy as a function of the investment amounts and the at least one parameter of each contingent claim in the replication set.

149. The article of manufacture according to claim 148, wherein the information includes information relating to an execution of the trade for the determined price.