System, method, and computer program for creating and valuing financial instruments linked to real estate indices

• US 20050216384A1
• Filed: 12/15/2003
• Published: 09/29/2005
• Est. Priority Date: 12/15/2003
• Status: Abandoned Application

• Current Assignee: World RISK Group LLC
• Original Assignee: World RISK Group LLC
• Inventors: O'Malley, Sean, Mejevitch, Maria, Haq, Kam, Partlow, Daniel
• Application Number:
  US10/736,058
• Publication Number:
  US 20050216384A1
• Time in Patent Office: Days
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A system, method and computer program for creating and valuing financial instruments (including but not limited to futures, forwards, call options, put options, swaps, “swaptions”, and “op-swaps”) linked to published real estate indices. The present invention will be referred to in this application as a real estate index linked financial instrument, and is defined as a financial instrument whose value changes based on movements in underlying indices based on real estate prices. These indices are published by sovereign governments, government-chartered agencies and departments (such as Fannie Mae, Freddie Mac, Office of Management and Budget, and the Treasury Department in the U.S.), non-governmental organizations, commercial banks, investment banks, realty agencies and many other organizations. The instruments can be written, with a published index number from any real estate index or indices as the initial value upon which the financial instrument'"'"'s terms are based. The predicted future value of the real estate index or indices will change in response to market buy/sell demand based on investor expectations of the predicted future value of the real estate index or indices related to one or more real estate index linked financial instrument(s). Thus, the predicted future value of the index or indices will change in response to the market demand as investors offer to buy and/or sell real estate index linked financial instruments which will be listed on securities exchanges and electronic commerce networks (ECNs) as well as over the counter (OTC) and in private transactions. Each predicted future index value will change based on the investor expectation of how strong demand will be for the underlying real estate market upon which each index or indices are based. Thus, the present invention gives investors a means of taking or adjusting positions upon price movements in local, city, regional, state, national, or multinational/international real estate markets. It is important to note that real estate index linked financial instruments can be created either in standardized contract sizes that can be traded on futures, options or other securities exchanges, ECNs and/or OTC, or can be customized to meet the specifications of a transactional counterparty which wishes to speculate on movements in local, city, regional, state, national, or multinational/international real estate prices. Such instruments may also be created from a plurality of indices, thus allowing an investor to package movements from several different real estate indices into a single financial instrument. Such instruments may also involve a combination of real estate index linked financial instruments, either with each other or with other financial instruments in a combination containing at least one real estate index linked financial instrument.

Claims

1. A method for creating and valuing financial instruments based upon real estate indices which compile real estate price information for localities, cities, regions, states, nations, or multinational/international areas.

2. The method of claim 1, where the future value of the financial instrument is calculated by inputting historical real estate index information and/or predicted future real estate index information and/or financial information, interest rate(s), currency denomination(s), and start date and date of expiry of each contract into a pricing model including but not limited to trinomial, binomial, Monte Carlo simulation, or Black-Scholes model.

3. The method of claim 2, wherein the financial instrument may be comprised of multiple financial instruments involving at least one financial instrument based upon a real estate index or indices, or is based upon multiple real estate indices, including but not limited to asset-backed securities, basket options, chooser options, option chains, or rainbow options.

4. A method for disseminating information for a financial instrument related to at least one real estate index, comprising the steps of:

a. quoting prices, historical real estate index information, predicted future real estate index information, and/or metrics (e.g. prices, open interest, 90-day volatility) on contracts of a real estate index linked financial instrument;

b. using an information distribution medium, either physical or electronic, to disseminate the information of claim a. to users of this information.

5. A computer-implemented method for creating and valuing a financial instrument based upon real estate indices which compile real estate price information for localities, cities, regions, states, nations, or multinational/international areas.

6. The method of claim 5, where the future value of the financial instrument is calculated by inputting historical real estate index information and/or predicted future real estate index information and/or financial information, interest rate(s), currency denomination(s), and start date and date of expiry of each contract into a pricing model including but not limited to trinomial, binomial, Monte Carlo simulation, or Black-Scholes model.

7. The method of claim 6, wherein the financial instrument may be comprised of multiple financial instruments involving at least one financial instrument based upon a real estate index or indices, or is based upon multiple real estate indices, including but not limited to asset-backed securities, basket options, chooser options, option chains, or rainbow options.

8. A computer-implemented method for determining the volatility of financial instruments based upon real estate indices which compile real estate price information for localities, cities, regions, states, nations, or multinational/international areas.

9. The method of claim 8, where the volatility of the financial instrument is calculated by inputting historical real estate index information and/or predicted future real estate index information and/or financial information, interest rate(s), currency denomination(s), and start date and date of expiry of each contract into a pricing model including but not limited to trinomial, binomial, Monte Carlo simulation, or Black-Scholes model.

10. The method of claim 9, wherein the financial instrument may be comprised of multiple financial instruments involving at least one financial instrument based upon a real estate index or indices, or is based upon multiple real estate indices, including but not limited to asset-backed securities, basket options, chooser options, option chains, or rainbow options.

11. A computer system for creating and valuing a financial instrument based upon real estate indices which compile real estate price information for localities, cities, regions, states, nations, or multinational/international areas, comprising:

a. a computer connected to a real estate index history database and/or a real estate predicted future index database and/or financial database that creates and values a financial instrument under conditions where the future value of the financial instrument is calculated by inputting historical real estate index information and/or predicted future real estate index information and/or financial information, interest rate(s), currency denomination(s), and start date and date of expiry of each contract into a pricing model including but not limited to trinomial, binomial, Monte Carlo simulation, or Black-Scholes model.

b. at least one workstation that allows a user to specify inputs that affect the value of the financial instrument.

12. A computer program product comprising a computer-usable medium havingcontrol logic stored therein for causing a computer to perform valuation of real estate index linked financial instruments, the control logic comprising:

a. a computer readable program code means that causes the computer to create and value a financial instrument based upon indices which compile real estate price information for localities, cities, regions, states, nations, or multinational/international areas.

b. a computer readable program code means for valuing a financial instrument based upon real estate indices by inputting historical real estate index information and/or predicted future real estate index information and/or financial information, interest rate(s), currency denomination(s), start date and date of expiry of each contract, and/or cost of the financial instrument into a pricing model including but not limited to trinomial, binomial, Monte Carlo simulation, or Black-Scholes model.

c. the method of claim b., where the future value of the financial instrument is a defined currency amount and the initial value is calculated by utilizing computer readable program code for applying a pricing model using historical real estate index information and/or predicted future real estate index information and/or financial information, interest rate(s), currency denomination(s), and start date and date of expiry of each contract.