Methods and systems for replicating an index with liquid instruments

• US 20060253360A1
• Filed: 04/24/2006
• Published: 11/09/2006
• Est. Priority Date: 04/22/2005
• Status: Abandoned Application

• Current Assignee: Bloomberg Finance LP (Bloomberg LP)
• Original Assignee: Lehman Brothers Incorporated (Barclays PLC)
• Inventors: Gould, Anthony Simon
• Application Number:
  US11/410,690
• Publication Number:
  US 20060253360A1
• 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

In at least one aspect, the invention comprises a method for replicating a first index, comprising: constructing a basket of derivative financial instruments selected to replicate said index; wherein said basket of derivative financial instruments is constructed using key rate duration matching based on a plurality of instruments, and wherein said basket is reconstructed on a periodic basis approximately equal to that on which said index is reconstructed. In another aspect, the invention comprises a method for replicating a portfolio of securities, comprising: constructing a basket of derivative financial instruments selected to replicate said portfolio; wherein said basket of derivative financial instruments is constructed using key rate duration matching based on a plurality of instruments, and wherein said basket is reconstructed on a periodic basis approximately equal to that on which said portfolio is reconstructed.

Claims

1. A method for replicating a first index, comprising:

constructing a basket of derivative financial instruments selected to replicate said index;

wherein said basket of derivative financial instruments is constructed using key rate duration matching based on a plurality of instruments, and

wherein said basket is reconstructed on a periodic basis approximately equal to that on which said index is reconstructed.

2. A method as in claim 1, wherein said plurality equals the number of types of duration of instruments in said index.

3. A method as in claim 1, wherein said first index is a fixed income index.

4. A method as in claim 1, wherein said derivative financial instruments comprise treasury futures.

5. A method as in claim 1, wherein said derivative financial instruments comprise interest rate swaps.

6. A method as in claim 1, wherein said derivative financial instruments comprise CDX products.

7. A method as in claim 1, wherein said derivative financial instruments comprise credit default swaps.

8. A method as in claim 1, wherein said basket comprises a second index.

9. A method as in claim 1, further comprising providing a total return swap, wherein a purchaser of said swap is guaranteed a return equivalent to that of said index.

10. A method comprising offering a total return swap for sale, wherein said total return swap is as in claim 9.

11. A method comprising offering a basket of derivative financial instruments for sale, wherein said basket of derivative financial instruments is as in claim 1.

13. A method as in claim 11, wherein said plurality equals the number of types of duration of instruments in said index.

14. A method as in claim 11, wherein said first index is a fixed income index.

15. A method as in claim 11, wherein said derivative financial instruments comprise treasury futures.

16. A method as in claim 11, wherein said derivative financial instruments comprise interest rate swaps.

17. A method as in claim 11, wherein said derivative financial instruments comprise CDX products.

18. A method as in claim 11, wherein said derivative financial instruments comprise credit default swaps.

19. A method as in claim 11, wherein said basket comprises a second index.

20. A method as in claim 11, further comprising providing a total return swap, wherein a purchaser of said swap is guaranteed a return equivalent to that of said index.

21. A method comprising offering a total return swap for sale, wherein said total return swap is as in claim 20.

22. A method comprising offering a basket of derivative financial instruments for sale, wherein said basket of derivative financial instruments is as in claim 11.

12. A method for replicating a portfolio of securities, comprising:

constructing a basket of derivative financial instruments selected to replicate said portfolio;

wherein said basket of derivative financial instruments is constructed using key rate duration matching based on a plurality of instruments, and

wherein said basket is reconstructed on a periodic basis approximately equal to that on which said portfolio is reconstructed.