Method and apparatus for improved electronic trading

• US 20090094151A1
• Filed: 10/03/2008
• Published: 04/09/2009
• Est. Priority Date: 10/05/2007
• Status: Active Grant

• Current Assignee: Virtu ITG Software Solutions LLC
• Original Assignee: 3D Markets, Inc. (Aritas Group, Inc.)
• Inventors: Mortimer, David Walter, Larison, Scott Charles
• Granted Patent: US 8,744,952 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 30/0283 Price estimation or determination
• 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 and apparatus for outputting data that represents the change in value of an options premium that would have resulted if the options traded in a direct linear volume relationship with its underlying security is provided. Input values utilized include a delta value, a gamma value, a value-weighted average price of an underlying stock, a reference price of the underlying stock, and an original order premium value.

Claims

1. A computer-readable storage medium having instructions which, when executed on a processor, perform a method for generating a benchmark price for an exchange-traded equity derivatives order, the method comprising:

receiving a first delta value, a gamma value, a value-weighted average price value of an underlying stock, a reference price value of the underlying stock, and an original order premium value;

where

the first delta value is a measure of the rate of change in a theoretical value of an option for a one-unit change in the price of the underlying stock;

the gamma value is a measure of the rate of change in a delta of an option for a one-unit change in the price of the underlying stock; and

the original order premium value is an agreed value;

calculating a master rate of change value based on the value-weighted average price and reference price values;

calculating an adjusted delta value based on the first delta value, the master rate of change value, and the gamma value;

calculating a gamma-weighted average price value based on the original order premium value, the master rate of change value, and the adjusted delta value; and

outputting the gamma-weighted average price value as a benchmark price for the order.

2. The computer-readable storage medium according to claim 1, wherein the original order premium value is set for an order interval.

3. The computer-readable storage medium according to claim 1, wherein the master rate of change value is calculated by subtracting the reference price value from the value-weighted average price value.

4. The computer-readable storage medium according to claim 1, wherein the adjusted delta value is calculated by multiplying the master rate of change value by the gamma value, and adding the first delta value.

5. The computer-readable storage medium according to claim 1, wherein the gamma-weighted average price value is calculated by multiplying the master rate of change value by the adjusted delta value, and adding the original order premium value.

6. The computer-readable storage medium according to claim 1, wherein the gamma-weighted average price value is calculated by multiplying the first delta value by the rate of change value to achieve a first product, squaring the rate of change value and multiplying the squared rate of change value by the gamma value to achieve a second product, and adding the first product and ½

of the second product to the original order premium value.

7. An apparatus for generating a benchmark trading price for an exchange-traded equity derivatives order, comprising:

an input module for receiving input values, the input values comprising a first delta value, a gamma value, a value-weighted average price value of an underlying stock, a reference price value of the underlying stock, and an original order premium value;

where;

the first delta value is a measure of the rate of change in an option'"'"'s theoretical value for a one-unit change in the price of the underlying stock;

the gamma value is a measure of the rate of change in an option'"'"'s first delta value for a one-unit change in the price of the underlying stock; and

the original order premium value is a value set for the order with corresponding values based on the first delta value, gamma value, and reference price value;

a processor for performing calculations, including;

calculating a master rate of change value based on the value-weighted average price and the reference price values;

calculating an adjusted delta value based on the first delta value, the master rate of change value, and the gamma value; and

calculating a gamma-weighted average price value based on the original order premium value, the master rate of change value, and the adjusted delta value; and

an output module for outputting the gamma-weighted average price value as a benchmark trading price for the order.

8. The apparatus according to claim 7, wherein the master rate of change value is calculated by subtracting the reference price value from the value-weighted average price value.

9. The apparatus according to claim 7, wherein the adjusted delta value is calculated by multiplying the master rate of change value by the gamma value, and adding the first delta value.

10. The apparatus according to claim 7, wherein the gamma-weighted average price value is calculated by multiplying the master rate of change value by the adjusted delta value, and adding the original order premium value.

11. The apparatus according to claim 7, wherein the gamma-weighted average price value is calculated by multiplying the first delta value by the rate of change value to achieve a first product, squaring the rate of change value and multiplying the squared rate of change value by the gamma value to achieve a second product, an adding the first product and ½

of the second product to the original order premium value.

12. A computer-readable storage medium having instructions which, when executed by a processor, perform a method for matching pre-open orders using a gamma-weighted average price, the method comprising:

receiving pre-open orders from a trader during a first time period, the pre-open orders including a seller amount and price or a buyer amount and price;

storing the pre-open orders in an order module;

matching the pre-open orders during a second time period that begins after the first time period ends, the orders being matched when the seller amount and price of a pre-open order matches the buyer amount and price of a pre-open order;

receiving market data during a third time period that begins after the second time period ends;

calculating a gamma-weighted average price value based on the received market data, the gamma-weighted average price being based on an original order premium value, a master rate of change value, and an adjusted delta value; and

outputting the gamma-weighted average price value as an estimate of a trading price for the order.

13. The computer-readable storage medium of claim 12, further comprising assigning to the pre-open orders a rank when the pre-open orders are received, the rank determining the order in which the pre-open orders are matched.

14. The computer-readable storage medium of claim 12, further comprising:

transmitting to the trader results of the matching and the gamma-weighted average price; and

transmitting to an exchange the results of the matched trades and the gamma-weighted average price.

15. An apparatus for conducting forward-price trades in the equity derivatives market, the apparatus comprising:

a communications module for receiving pre-open orders from a trader during a first time period, the pre-open orders including a seller amount and price or a buyer amount and price;

an order module for storing the pre-open orders;

a matching module for matching the pre-open orders during a second time period that begins after the first time period ends, the pre-open orders being matched when the seller amount and price of a pre-open order matches the buyer amount and price of a pre-open order;

an input module for receiving market data during a third time period that begins after the second time period ends;

a calculation module for calculating a gamma-weighted average price based on the received market data, the gamma-weighted average price being based on an original order premium value, a master rate of change value, and an adjusted delta value; and

a display module for outputting the gamma-weighted average price as a benchmark price for the order.

16. A computer-readable storage medium having instructions which, when executed on a processor, perform a method for calculating the level of trading interest of derivative instruments at a gamma-weighted average price and incremental prices around the gamma-weighted average price, the method comprising:

receiving pre-open orders from a trader during a first time period, each pre-open order including (1) a seller amount value at a gamma-weighted average price value or a second price value, or (2) a buyer amount value at the gamma-weighted average price value or the second price value;

calculating the level of buyer trading interest at the gamma-weighted average price value by adding the buyer amount value in each pre-open order at the gamma-weighted average price value;

calculating the level of buyer trading interest at the second price value by adding the buyer amount value in each pre-open order at the second price value;

calculating the level of seller trading interest at the gamma-weighted average price value by adding the buyer amount value in each pre-open order at the gamma-weighted average price value;

calculating the level of seller trading interest at the second price value by adding the buyer amount value in each pre-open order at the second price value; and

outputting values representing the level of buyer trading interest at the gamma-weighted average price value, the level of buyer trading interest at the second price value, the level of seller trading interest at the gamma-weighted average price value, and the level of buyer trading interest at the second price value.

17. The computer-readable storage medium of claim 16, wherein the second price value is the gamma-weighted average price value added to an incremental value.

18. The computer-readable storage medium of claim 16, wherein the method further comprises:

calculating an indicative crossing price value, an indicative crossing size value, an indicative price imbalance value, and the side of the indicative price imbalance;

calculating a buy clearing price value and a buy clearing size value;

calculating a sell clearing price value and a sell clearing size value; and

outputting one or more of the calculations to a display unit.