Method of Creating and Trading Derivative Investment Products Based on a Statistical Property Reflecting the Volatility of an Underlying Asset
First Claim
1. A method of creating derivatives based on a volatility of an underlying asset, comprising:
- calculating a value for a statistical property reflecting the volatility of the underlying asset on a processor of a volatility property module, the value for the statistical property reflecting an average volatility of price returns of the underlying asset over a predefined time period;
creating at least one volatility derivative based on the statistical Property;
displaying the at least one volatility derivative on a trading facility display device coupled to a trading platform;
transmitting at least one volatility derivative quote of a liquidity provider from a dissemination module of the trading facility to at least one market participant, andsettling a volatility derivative based on a difference between a first statistical Property reflecting a volatility of the underlying asset and a strike price of the volatility derivative set at a second statistical Property reflecting a volatility of the underlying asset.
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Abstract
A method of creating and trading derivative contracts based on a statistical property reflecting a volatility of an underlying asset is disclosed. Typically, an underlying asset is chosen to be a base of a volatility derivative and a processor calculates a value of the statistical property reflecting an average volatility of price returns of the underlying asset over a predefined period. A trading facility display device coupled to a trading platform then displays the volatility derivative based on the value of the statistical property reflecting the volatility of the underlying asset and the trading facility transmits volatility derivative quotes from liquidity providers over at least one dissemination network.
106 Citations
24 Claims
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1. A method of creating derivatives based on a volatility of an underlying asset, comprising:
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calculating a value for a statistical property reflecting the volatility of the underlying asset on a processor of a volatility property module, the value for the statistical property reflecting an average volatility of price returns of the underlying asset over a predefined time period; creating at least one volatility derivative based on the statistical Property; displaying the at least one volatility derivative on a trading facility display device coupled to a trading platform; transmitting at least one volatility derivative quote of a liquidity provider from a dissemination module of the trading facility to at least one market participant, and settling a volatility derivative based on a difference between a first statistical Property reflecting a volatility of the underlying asset and a strike price of the volatility derivative set at a second statistical Property reflecting a volatility of the underlying asset. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20)
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21. A computer-readable storage medium comprising a set of instruction for creating derivatives based on a volatility of an underlying asset, the set of instructions to direct a processor to perform acts of:
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calculating a value for a statistical property reflecting the volatility of the underlying asset, the value for the statistical property reflecting an average volatility of price returns of the underlying asset over a predefined time period; creating at least one volatility derivative based the statistical property; displaying the at least one volatility derivative on a trading facility display device coupled to a trading platform; transmitting at least one volatility derivative quote of a liquidity provider from a dissemination module of the trading facility to at least one market participant; and settling a volatility derivative based on a difference between a first statistical property reflecting a volatility of the underlying asset and a strike price of the volatility derivative set at a second statistical property reflecting a volatility of the underlying asset.
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22. A system for creating and trading derivatives based on the volatility of an underlying asset, comprising:
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a volatility property 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 volatility property 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 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; a first set of logic, stored in the first memory and executable by the first processor to receive current values for an underlying asset of a volatility derivative through the first communications interface;
calculate a realized volatility, cumulative realized volatility, and implied realized volatility for the underlying asset; and
pass values for the calculated realized volatility, cumulative realized volatility, and implied realized volatility to the dissemination module; anda second set of logic, stored in the second memory and executable by the second processor to receive the calculated realized volatility, cumulative realized volatility, and implied realized volatility values for the underlying asset from the volatility property module; and
disseminate the calculated values through the second communications interface to at least one market participant; anda third set of logic, stored in the third memory and executable by the third processor, to receive at least one buy or sell order over the communications network;
execute the buy or sell order;
pass a result of the buy or sell order to the dissemination module; and
settle at least one trading derivative based on a difference between a first statistical property reflecting a volatility of the underlying asset and a strike price of the at least one trading derivative set at a second statistical property reflecting a volatility of the underlying asset.
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23. A method of creating derivatives based on a volatility of an instrument based on an underlying asset, comprising:
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calculating a value for a statistical property reflecting the volatility of the instrument based on the underlying asset on a processor of a volatility property module, the value for the statistical property reflecting an average volatility of price returns of the instrument based on the underlying asset over a predefined time period; creating at least one volatility derivative based on the statistical property; displaying the at least one volatility derivative on a trading facility display device coupled to a trading platform; transmitting at least one volatility derivative quote of a liquidity provider from a dissemination module of the trading facility to at least one market participant; and settling a volatility derivative based on a difference between a first statistical property reflecting a volatility of the instrument based on the underling asset and a strike price of the volatility derivative set at a second statistical property reflecting a volatility of the instrument based on the underlying asset.
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24. A computer-readable storage medium comprising a set of instructions for creating derivatives based on a volatility of an instrument based on an underlying asset, the set of instructions to direct a processor to perform acts of:
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calculating a value for a statistical property reflecting the volatility of the instrument based on the underlying asset, the value for the statistical property reflecting an average volatility of price returns of the instrument based on the underlying asset over a predefined time period; creating at least one volatility derivative based on the statistical property; displaying the at least one volatility derivative on a trading facility display device coupled to a trading platform; transmitting at least one volatility derivative quote of a liquidity provider from a dissemination module of the trading facility to at least one market participant; and settling a volatility derivative based on a difference between a first statistical property reflecting a volatility of the instrument based on the underling asset and a strike price of the volatility derivative set at a second statistical property reflecting a volatility of the instrument based on the underlying asset.
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Specification