System for pricing financial instruments

• US 20080177676A1
• Filed: 02/25/2008
• Published: 07/24/2008
• Est. Priority Date: 03/18/2002
• Status: Active Grant

• Current Assignee: NYSE American LLC (Intercontinental Exchange, Inc.)
• Original Assignee: American Stock Exchange, LLC (Intercontinental Exchange, Inc.)
• Inventors: Norman, Terry, Gastineau, Gary L., Weber, Clifford J., Baker, Charles A., MacQueen, Jason, Alexander, Carol
• Granted Patent: US 7,979,336 B2
• Time in Patent Office: Days
• US Class Current: 705/36R
• 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
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A method of determining an estimate of the market value of a traded unit of a financial instrument, and apparatus for carrying out the method, said instrument comprising a fund of individually priced securities and the exact composition of said fund being withheld from the market, said method comprising selecting a plurality of mutually independent risk factors, each risk factor being representative of market behaviour estimated to be significant to the price behaviour of the traded unit, obtaining information from a third party holding information regarding the composition of said fund regarding the actual significance of said risk factors to the value of said traded unit, and calculating a value for said traded unit on the basis of said significances.

Claims

1. A method for hedging an investment in an actively managed exchange traded fund comprising:

receiving, on a computer system over a network, indications of levels of risk associated with risk factors, wherein the levels of risk associated with risk factors indicate the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors; and

hedging an investment in the actively managed exchange traded fund using a portfolio of securities with substantially the same levels of risk associated with the risk factors as the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors;

wherein the actual composition of the actively managed exchange traded fund is unknown to an investor hedging an investment in the actively managed exchange traded fund.

2. The method of claim 1, wherein the indications of levels of risk are provided from a third party computer over the network.

3. The method of claim 2, wherein the hedging portfolio is calculated on an investor computer.

4. The method of claim 1, wherein the investor is a trader, a market maker, or a specialist.

5. The method of claim 1, wherein a set of instruments held by the actively managed exchange traded fund is published.

6. A method for hedging an investment in an actively managed exchange traded fund comprising:

sending, from a first computer, a set of instruments to be used as hedging instruments over a computer network to a second computer;

receiving from the second computer a corresponding coefficient for each instrument to be used as a hedging instrument; and

constructing a hedging portfolio by applying the corresponding coefficient to each instrument to be used as a hedging instrument;

wherein the hedging portfolio has substantially the same levels of risk associated with risk factors as the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors, and wherein the actual composition of the actively managed exchange traded fund is unknown to an investor hedging an investment in the actively managed exchange traded fund.

7. The method of claim 6, wherein the investor sends the set of instruments to be used as hedging instruments.

8. The method of claim 7, wherein the second computer is an independent third party computer.

9. The method of claim 6, wherein the investor is a trader, a market maker, or a specialist.

10. The method of claim 6, wherein a set of instruments held by the actively managed exchange traded fund is published.

11. A method for hedging an investment in an actively managed exchange traded fund comprising:

receiving from a second computer data indicative of a basket of instruments, wherein the basket of instruments, the basket of instruments having substantially the same levels of risk associated with risk factors as the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors; and

using a first computer to construct a hedging portfolio, the hedging portfolio having substantially the same levels of risk associated with the risk factors as the levels of risk of the basket of instruments associated with the risk factors;

wherein the actual composition of the actively managed exchange traded fund is unknown to an investor hedging an investment in the actively managed exchange traded fund.

12. The method of claim 11, wherein the second computer is an independent third party computer.

13. The method of claim 11, wherein the second computer is an exchange computer.

14. The method of claim 11, wherein the investor is a trader, a market maker, or a specialist.

15. The method of claim 11, wherein a set of instruments held by the actively managed exchange traded fund is published.

16. A method for calculating a hedging portfolio for hedging an investment in an actively managed exchange traded fund, comprising:

receiving, from a first computer over a computer network, a set of instruments to be used as hedging instruments to hedge an investment in the actively managed exchange traded fund;

calculating a set of coefficients corresponding to the set of instruments, wherein a portfolio constructed by applying corresponding coefficients to each instrument, has substantially the same levels of risk associated with risk factors as the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors; and

sending the set of coefficients to the first computer over the computer network;

wherein the actual composition of the actively managed exchange traded fund is unknown to an investor hedging an investment in the actively managed exchange traded fund.

17. The method of claim 16, wherein a set of instruments held by the actively managed exchange traded fund is published.

18. The method of claim 16, wherein the first computer is a third party computer.

19. The method of claim 16, wherein the first computer is a fund manager computer or an administrator/custodian computer.

20. A method to allow hedging an investment in an actively managed exchange traded fund, comprising:

calculating on a first computer a set of coefficients corresponding to a set of instruments, wherein a portfolio constructed by applying corresponding coefficients to each instrument has substantially the same levels of risk associated with risk factors as the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors; and

sending data indicating the portfolio constructed by applying the corresponding coefficients to each instrument over a computer network to a second computer;

wherein the actual composition of the actively managed exchange traded fund is unknown to an investor hedging an investment in the actively managed exchange traded fund.

21. The method of claim 20, wherein the first computer is a fund manager computer or an administrator/custodian computer.

22. The method of claim 20, wherein the first computer is an exchange computer.

23. The method of claim 20, wherein the second computer is a trader, market maker, or specialist computer.