Method of creating and trading derivative investment products based on an average price of an underlying asset during a calculation period

• US 20060253369A1
• Filed: 05/04/2005
• Published: 11/09/2006
• Est. Priority Date: 05/04/2005
• Status: Abandoned Application

• Current Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Original Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Inventors: O'Callahan, Dennis M.
• Application Number:
  US11/122,512
• Publication Number:
  US 20060253369A1
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A method of creating and trading derivative contracts based on an average trading price of an underlying asset over a calculation period is disclosed. Typically, an underlying asset is chosen to be a base of an Asian derivative and a processor calculates a cumulative realized average price reflecting an average trading price of an underlying asset during a calculation period. A trading facility display device coupled to a trading platform then displays the Asian derivative and the trading facility transmits Asian derivative quotes from liquidity providers over at least one dissemination network.

Claims

1. A method of creating derivatives based on an average trading price of an underlying asset during a calculation period, comprising:

receiving trading price information for the underlying asset from at least one index provider;

calculating on a processor the average trading price of the underlying asset during the calculation period as a function of the trading price information;

displaying Asian derivatives based on the calculated average trading price of the underlying asset on a trading facility display device coupled to a trading platform;

receiving at least one Asian derivative quote from a liquidity provider; and

transmitting at least one Asian derivative quote of at least one liquidity provider from the trading facility to at least one market participant.

2. The method of claim 1, wherein the underlying asset is selected from the group consisting of:

equity indexes or securities;

fixed income indexes or securities;

foreign currency exchange rates;

interest rates;

commodity indexes; and

commodity or structured products traded on a trading facility or over-the-counter market.

3. The method of claim 1, wherein the average trading price is a geometric average of the trading price of the underlying asset during the calculation period.

4. The method of claim 1, wherein the average trading price is an arithmetic average of the trading price of the underlying asset during the calculation period.

5. The method of claim 1, wherein the trading facility is an exchange.

6. The method of claim 1, wherein the liquidity provider is selected from the group consisting of:

Designated Primary Market Makers (“

DPM”

), market makers, locals, specialists, trading privilege holders, and, members.

7. The method of claim 1, wherein the market participant is selected from the group consisting of:

a liquidity provider, a brokerage firm, and a normal investor.

8. The method of claim 1, further comprising:

executing trades for the Asian derivatives by matching bids and offers to buy and sell positions in Asian derivatives.

9. The method of claim 1, wherein at least one of the Asian derivatives is an Asian option contract.

10. The method of claim 1, wherein at least one of the Asian derivatives is an Asian futures contract.

11. The method of claim 1, further comprising:

calculating a cumulative realized average price on a processor, wherein the cumulative realized average price is the average trading price of the underlying asset up to a current date;

displaying the cumulative realized average price on the trading facility display device; and

transmitting the cumulative realized average price from the trading facility to at least one market participant.

12. The method of claim 11, wherein the cumulative realized average price is calculated in real time.

13. The method of claim 11, further comprising:

transmitting the cumulative realized average price over at least one dissemination network.

14. The method of claim 1, wherein the trading platform is an open outcry platform.

15. The method of claim 1, wherein the trading platform is an electronic platform.

16. The method of claim 1, wherein the trading platform is a hybrid of an open outcry platform and an electronic platform.

17. A method of creating derivatives based on an average trading price of an underlying asset during a calculation period, comprising:

choosing at least one underlying asset to be a base of an Asian derivative;

receiving trading price information for the at least one underlying asset from at least one index provider;

calculating the average trading price of the at least one underlying asset during the calculation period as a function of the trading price information;

displaying at least one Asian derivative based on the calculated average trading price of the at least one underlying asset on a trading facility display device coupled to a trading platform;

receiving bids and offers to buy and sell positions in the at least one Asian derivative from market participants; and

executing trades for the at least one Asian derivative by matching bids and offers to buy and sell positions in Asian derivatives.

18. The method of claim 17, further comprising:

receiving at least one quote for the at least one Asian derivative from a liquidity provider; and

transmitting at least one quote for the at least one Asian derivative of at least one liquidity provider over a dissemination network to at least one market participant.

19. The method of claim 18, wherein the liquidity provider is selected from the group consisting of:

Designated Primary Market Makers (“

DPM”

), market makers, locals, specialists, trading privilege holders, and members.

20. The method of claim 18, wherein the market participant is selected from the group consisting of:

a liquidity provider, a brokerage firm, and a normal investor.

21. The method of claim 18, further comprising:

calculating a cumulative realized average price reflecting the average trading price of the at least one underlying asset up to a current date;

displaying the cumulative realized average price on the trading facility display device; and

transmitting the cumulative realized average price over the dissemination network to at least one market participant.

22. The method of claim 17, wherein the underlying asset is selected from the group consisting of:

equity indexes or securities;

fixed income indexes or securities;

foreign currency exchange rates;

interest rates;

commodity indexes; and

commodity or structured products traded on a trading facility or over-the-counter market.

23. The method of claim 17, wherein the average trading price is a geometric average of the trading price of the at least one underlying asset during the calculation period.

24. The method of claim 17, wherein the average trading price is an arithmetic average of the trading price of the at least one underlying asset during the calculation period.

25. The method of claim 17 wherein the Asian derivative is an Asian futures contract.

26. The method of claim 17 wherein the Asian derivative is an Asian option contract.

27. A system for creating and trading derivatives based on an average price of an underlying asset during a calculation period, comprising:

an average trading price module comprising a first processor, a first memory coupled with the first processor, and a first communications interface coupled with a communications network, the first processor, and the first memory;

a dissemination module coupled with the average trading price module, the dissemination module comprising a second processor, a second memory coupled with the second processor, and a second communications interface coupled with the communications network, the second processor, and the second memory;

a first set of logic, stored in the first memory and executable by the first processor to receive trading prices for an underlying asset of an Asian derivative through the communications network;

calculate a cumulative realized average price; and

pass the cumulative realized average price to the dissemination module; and

a second set of logic, stored in the second memory and executable by the second processor to receive the cumulative realized average price for the underlying asset from the average trading price module; and

disseminate the cumulative realized average price through the second communications interface to at least one market participant.

28. The system of claim 27, further comprising:

a trading module coupled with the dissemination module, the trading module comprising a third processor, a third memory coupled with the third processor, and a third communications interface coupled with the communications network, the third processor, and the third memory; and

a third set of logic, stored in the third memory and executable by the third processor, to receive at least one buy or sell order for the Asian derivative;

execute the buy or sell order; and

pass a result of the buy or sell order to the dissemination module; and

a fourth set of logic, stored in the second memory and executable by the second processor to receive the result of the buy or sell order from the trading module and disseminate the result of the buy or sell order through the second communications network to the at least one market participant.

29. A system for creating and trading derivatives based on an average trading price of an underlying asset during a calculation period, comprising:

an average trading price module coupled with a communications network for receiving trading prices for an underlying asset of an Asian derivative and calculating a cumulative realized average price for the underlying asset;

a dissemination module coupled with the average trading price module and the communications network for receiving the cumulative realized average price from the average trading price module and disseminating the cumulative realized average price of the underlying asset to at least one market participant; and

a trading module coupled with the dissemination module and the communications network for receiving at least one buy or sell order for the Asian derivative and executing the at least one buy or sell order.