UPSIDE FORWARD WITH EARLY FUNDING PROVISION

• US 20100325033A1
• Filed: 08/27/2010
• Published: 12/23/2010
• Est. Priority Date: 10/11/2005
• Status: Active Grant

• Current Assignee: JP Morgan Chase Bank, N.A. (JP Morgan Chase & Co)
• Original Assignee: JP Morgan Chase Bank, N.A. (JP Morgan Chase & Co)
• Inventors: Aidelson, David B., ROTHSCHILD, James
• Granted Patent: US 8,463,687 B2
• Time in Patent Office: Days
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• 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
• CPC Class Codes: G06Q 99/00 Subject matter not provided for in other groups of this subclass

Abstract

A system for and method of providing a forward contract with an upside return and the possibility of early valuation are presented. The prices of the underlying financial instruments are allowed to float to a limited extent. Moreover, the party taking the short position is allowed to cash out early, without having to unwind the entire contract. The contact may be used, for example, by a corporation that wishes to raise capital using equity instruments.

Claims

1. A method comprising:

contracting with an entity to purchase a first quantity of financial instruments on at least one predetermined future date for a price, at least one of the price and the first quantity reflecting a predetermined floor price and being at least partially dependant on a market price of the first quantity of financial instruments at a delivery date;

hedging a position, using a programmed computer, the position defined at least partially by the contracting step; and

buying, in accordance with the contracting step and for a present value of the predetermined floor price of the second quantity of financial instruments calculated at a time prior to the delivery date, a second quantity of the financial instruments from the entity at a time prior to the predetermined future date, wherein the second quantity is less than the first quantity.

2. The method of claim 1, wherein the step of hedging comprises dynamic hedging.

3. The method of claim 1, wherein the price further comprises a predetermined ceiling price if a market price of the quantity of financial instruments at the maturity date is greater than the ceiling price and a market price of the quantity of financial instruments at the maturity date if the market price of the quantity of financial instruments at the maturity date lies between the ceiling price and the floor price.

4. The method of claim 3, wherein the ceiling price and the floor price are determined at the step of contracting.

5. The method of claim 1, wherein the entity issues the financial instruments.

6. The method of claim 1, further comprising paying compensation, the compensation comprising a difference between a ceiling price and the floor price for the second quantity of financial instruments if a market price of the second quantity of financial instruments at the maturity date is greater than the ceiling price, zero if the market price of the second quantity of financial instruments at the maturity date is less than the floor price, and a difference between the market price of the second quantity of financial instruments at the maturity date and the floor price for the second quantity of financial instruments if the market price of the second quantity of financial instruments at the maturity date lies between the ceiling price and the floor price for he second quantity of financial instruments.

7. A method comprising:

contracting for sale of a first quantity of financial instruments on a maturity date in exchange for a price, at least one of the price and the first quantity reflecting a predetermined floor price and being at least partially dependant on a market price of the first quantity of financial instruments at a delivery date, the delivery being to an entity;

offering to the entity, in accordance with the step of contracting, a second quantity of the financial instruments at a time prior to the maturity date for a value, the value reflecting a present value of the predetermined floor price calculated at a time prior to the delivery date, wherein the second quantity is less than the first quantity;

calculating, using a programmed computer, a maturity settlement, the step of calculating comprising accounting for the first quantity of financial instruments and accounting for the second quantity of financial instruments; and

receiving the maturity settlement from the entity.

8. The method of claim 7, wherein the price further comprises a predetermined ceiling price if a market price of the quantity of financial instruments at the maturity date is greater than the ceiling price and a market price of the quantity of financial instruments at the maturity date if the market price of the quantity of financial instruments at the maturity date lies between the ceiling price and the floor price.

9. The method of claim 8, wherein the ceiling price and the floor price are determined at the step of contracting.

10. The method of claim 7 further comprising issuing the financial instruments.

11. The method of claim 7 further comprising:

receiving an acceptance of an offer, the offer arising from the step of offering;

delivering, in accordance with the step of contracting and in accordance with the step of offering, the second quantity of the financial instruments at a time prior to the maturity date to the entity; and

receiving the value for the second quantity of financial instruments from the entity, the step of receiving the value being in accordance with the step of contracting.

12. The method of claim 11, further comprising paying compensation, the compensation comprising a difference between a ceiling price and the floor price for the second quantity of financial instruments if a market price of the second quantity of financial instruments at the maturity date is greater than the ceiling price, zero if the market price of the second quantity of financial instruments at the maturity date is less than the floor price, and a difference between the market price of the second quantity of financial instruments at the maturity date and the floor price for the second quantity of financial instruments if the market price of the second quantity of financial instruments at the maturity date lies between the ceiling price and the floor price for the second quantity of financial instruments.

13. A method comprising:

contracting with an entity to purchase a first quantity of financial instruments on a predetermined future date for a price, at least one of the price and the first quantity reflecting a predetermined floor price and being at least partially dependant on a market price of the first quantity of financial instruments at a delivery date;

hedging a position, using a programmed computer, the position defined at least partially by the contracting step; and

receiving an offer to buy, in accordance with the contracting step, a second quantity of the financial instruments from the entity at a time prior to the predetermined future date for a value, the value reflecting a present value of the predetermined floor price calculated at a time prior to the delivery date, wherein the second quantity is less than the first quantity.

14. The method of claim 13, wherein the step of hedging comprises dynamic hedging.

15. The method of claim 13, wherein the price comprises a predetermined ceiling price if a market price of the quantity of financial instruments at the maturity date is greater than the ceiling price and a market price of the quantity of financial instruments at the maturity date if the market price of the quantity of financial instruments at the maturity date lies between the ceiling price and the floor price.

16. The method of claim 15, wherein the ceiling price and the floor price are determined at the step of contracting.

17. The method of claim 13, wherein the entity issues the financial instruments.

18. The method of claim 13 further comprising:

accepting the offer to buy;

receiving, in accordance with the step of contracting and in accordance with the step of offering, the second quantity of the financial instruments at a time prior to the maturity date to the entity; and

delivering the value for the second quantity of financial instruments to the entity, the step of delivering the value being in accordance with the step of contracting.

19. The method of claim 18, further comprising paying compensation, the compensation comprising a difference between a ceiling price and the floor price for the second quantity of financial instruments if a market price of the second quantity of financial instruments at the maturity date is greater than the ceiling price, zero if the market price of the second quantity of financial instruments at the maturity date is less than the floor price, and a difference between the market price of the second quantity of financial instruments at the maturity date and the floor price for the second quantity of financial instruments if the market price of the second quantity of financial instruments at the maturity date lies between the ceiling price and the floor price for the second quantity of financial instruments.