Method and system for creating and trading derivative investment products based on a statistical property reflecting the variance of an underlying asset
First Claim
1. A limited risk derivative product based on a realized variance of an underlying equity, comprising:
- a capped value for a statistical property reflecting the variance of the underlying equity, the capped value for the statistical property comprising a dynamic value and a cap, the dynamic value reflecting an average volatility of price returns of the underlying equity over a predefined time period and the cap reflecting a maximum value of the dynamic value; and
an average of a summation of each squared daily return of the underlying equity included in the value for the statistical property reflecting the variance of the underlying equity;
wherein the value of the statistical property is calculated according to the formula;
Pi is an initial value of the underlying equity used to calculate a daily return, Pi+1 is a final value of the underlying equity used to calculate the daily return, Ne is a number of expected underlying equity values needed to calculate daily returns during a variance calculation period, Na is an actual number of underlying equity values used to calculate daily returns during the variance calculation period; and
AF is an annualization factor.
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Accused Products
Abstract
A system and method for creating a limited risk derivative based on a realized variance of an underlying equity is disclosed. In one implementation, a limited risk derivative product includes a capped value for a statistical property reflecting a variance of the underlying equity is calculated based on a pari-mutuel action. The capped value comprises a dynamic value and a cap. The dynamic value reflects an average volatility of prices returns of the underlying equity over a predefined period of time and the cap reflects a maximum value of the dynamic value. The limited risk derivative product additionally includes an average of a summation of each squared daily return of the underlying equity included in the value for the statistical property reflecting the variance of the underlying equity.
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Citations
25 Claims
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1. A limited risk derivative product based on a realized variance of an underlying equity, comprising:
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a capped value for a statistical property reflecting the variance of the underlying equity, the capped value for the statistical property comprising a dynamic value and a cap, the dynamic value reflecting an average volatility of price returns of the underlying equity over a predefined time period and the cap reflecting a maximum value of the dynamic value; and
an average of a summation of each squared daily return of the underlying equity included in the value for the statistical property reflecting the variance of the underlying equity;
wherein the value of the statistical property is calculated according to the formula;
Pi is an initial value of the underlying equity used to calculate a daily return, Pi+1 is a final value of the underlying equity used to calculate the daily return, Ne is a number of expected underlying equity values needed to calculate daily returns during a variance calculation period, Na is an actual number of underlying equity values used to calculate daily returns during the variance calculation period; and
AF is an annualization factor. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10)
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11. A method of creating limited risk derivatives based on a realized variance of an underlying equity, comprising:
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calculating from a pari-mutuel auction a capped value for a statistical property reflecting the variance of the underlying equity, the capped value comprising a dynamic value and a cap, the dynamic value reflecting an average volatility of price returns of the underlying equity over a predefined time period and the cap reflecting a maximum value of the dynamic value;
calculating an average of a summation of each squared daily return of the underlying equity included in the value for the statistical property reflecting the variance of the underlying equity;
wherein the value of the statistical property is calculated according to the formula;
Pi is an initial value of the underlying equity used to calculate a daily return, Pi+1 is a final value of the underlying equity used to calculate the daily return, Ne is a number of expected underlying equity values needed to calculate daily returns during a variance calculation period, Na is an actual number of underlying equity values used to calculate daily returns during the variance calculation period; and
AF is an annualization factor;
displaying at least one limited risk variance derivative based on the statistical property reflecting variance on a trading facility display device coupled to a trading platform; and
transmitting at least one limited risk variance derivative quote of a liquidity provider from the trading facility to at least one market participant. - View Dependent Claims (12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25)
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Specification