Methods and apparatus relating to the formulation and trading of investment contracts

• US 6,157,918 A
• Filed: 05/15/1998
• Issued: 12/05/2000
• Est. Priority Date: 07/07/1995
• Status: Expired due to Term

• Current Assignee: Alice Corporation Pty Limited
• Original Assignee: Swychco Infrastructure Services Pty Limited
• Inventors: Shepherd, Ian Kenneth
• Primary Examiner(s): Weinhardt, Robert A.
• Assistant Examiner(s): ROSEN, NICHOLAS D
• Application Number:
  US09/000,264
• Time in Patent Office: 935 Days
• Field of Search: 705/37, 705/35, 705/36
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 30/08 Auctions
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• 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

Abstract

Methods and apparatus relating to the formulation and trading of investment contracts are described. An ordering party inputs contract data relating to a phenomenon. The phenomenon has a range of future outcomes and a future time of maturity. The contract data includes a set of probabilities of occurrence for each outcome within the range, and a consideration due a counterparty at or after the time of matching. At least one counterparty inputs registering data that includes a set of probabilities of occurrence for each outcome in the range. A data processing means prices and matches a contract for the phenomenon from the contract data and registering data. Pricing the contract includes applying at least one template of entitlement as a function of outcome to each counterparty'"'"'s set of probabilities to give one or more individual counter party prices that are each equal to the ordering party'"'"'s consideration, and applying the ordering party set of probabilities to each template of entitlement to derive an implied entitlement valuation. Matching the contract includes determining which counterparty will provide the best entitlement on maturity by comparing each entitlement with the consideration, and matching the contract with the counterparty having a template of entitlement for the best comparison.

Claims

1. A data processing system to enable the formulation of multi-party investment contracts, the system comprising:

input means by which an ordering party can input contract data relating to at least one phenomenon, each said phenomenon having a range of future outcomes and a future time of maturity, the contract data including a set of probabilities of occurrence for each outcome in said range and a consideration due to a counterparty at or after the time of matching, and further by which at least one counterparty can input registering data including a set of probabilities of occurrence for each outcome in said range; and

data processing means operable to price and match a contract for a said phenomenon from said contract data and said registering data, the pricing including;

applying at least one template of entitlement as a function of outcome to each counterparty'"'"'s set of probabilities to give one or more individual counterparty prices each equal to the ordering party'"'"'s consideration; and

applying the ordering party set of probabilities to each said template of entitlement to derive an implied entitlement valuation;

the matching including;

determining which counterparty will provide the best entitlement on maturity by comparing each implied entitlement valuation with the consideration; and

matching the contract with that counterparty having a template of entitlement for the best said comparison.

2. A data processing system as claimed in claim 1, wherein, in the pricing, application of a template of entitlement results in the multiplication of each elemental entitlement with each probability, and the summing of the products.

3. A data processing system as claimed in claim 2, further wherein a discount factor is applied to the sum to give a present day price relative to the time of maturity.

4. A data processing system as claimed in claim 1, wherein, in the pricing, each template of entitlement is applied to the ordering party set of probabilities, and a multiplication of the elemental entitlements with each probability performed, and the products summed to give the implied entitlement valuation.

5. A data processing system as claimed in claim 4, wherein the said sum has a discount rate applied to give a present day value relative to the time of maturity.

6. A data processing system as claimed in claims 1, wherein the contract data further include a minimum expected entitlement against which the counterparty prices are compared for the purpose of accepting ones thereof for the matching.

7. A data processing system as claimed in claim 1, wherein the contract data include a constraint on the one or more templates of entitlement applied by the data processing means.

8. A data processing system as claimed in claim 1, wherein the data processing means periodically reprices the contract data for a matched contract to derive one or more implied entitlement valuations for one or more counterparties.

9. A data processing system to enable the formulation of potential multiparty investment contracts, the system comprising:

input means by which an ordering party can input contract data relating to a least one phenomenon, each said phenomenon having a range of future outcomes and a future time of maturity, the contract data including a set of probabilities of occurrence for each outcome in said range and a consideration due to a counterparty at or after the time of matching, and further by which at least one counterparty can input registering data including a set of probabilities of occurrence for each outcome in said range; and

data processing means operable to price a contract for a said phenomenon from said contract data and said registering data, the pricing including;

applying at least one template of entitlement as a function of outcome to each counterparty'"'"'s set of probabilities to give one or more individual counterparty prices each equal to the ordering party'"'"'s consideration; and

applying the ordering party set of probabilities to each said template of entitlement to derive an implied entitlement valuation.

10. A data processing system to enable the formulation of potential multi-party investments contracts, the system comprising:

input means by which an ordering party can input contract data relating to at least one phenomenon, each said phenomenon having a range of future outcomes and a future time of maturity, the contract data including a set of probabilities of occurrence for each outcome in said range and a consideration due to a counterparty at or after the time of matching, and further by which at least one counterparty can input registering data including a set of probabilities of occurrence for each outcome in said range; and

data processing means operable to price and match a contract for a said phenomenon from said contract data and said registering data, the pricing including;

dividing the consideration into components, and for each component;

applying at least one template of entitlement as a function of outcome to each counterparty'"'"'s set of probabilities to give one or more individual counterparty prices each equal to the ordering party'"'"'s component consideration; and

applying the ordering party set of probabilities to each said template of entitlement to derive an implied component entitlement valuation;

the matching including;

determining which counterparty will provide the best entitlement on maturity by comparing each implied component entitlement valuation with the consideration; and

matching the contract with the counterparties having templates of entitlement for the best said component comparisons.

11. A method for the formulation of multi-party investment contracts, the method comprising the steps of:

inputting ordering party contract data relating to at least one phenomenon, each said phenomenon having a range of future outcomes and a future time of maturity, the contract data including a set of probabilities of occurrence for each outcome in said range and a consideration due to a counterparty at or after the time of matching;

inputting counterparty registering data including a set of probabilities of occurrence for each outcome in said range; and

pricing and matching a contract for a said phenomenon from said contract data and said registering data, said step of pricing, for each counterparty, including;

applying at least one template of entitlement as a function of outcome to the set of probabilities included in the counterparty registering data to give one or more individual counterparty prices; and

applying the ordering party set of probabilities to each individual counterparty template of entitlement to derive an implied entitlement valuation;

said step of matching including;

determining which counterparty will provide the best entitlement on maturity by comparing the implied entitlement valuations with the consideration; and

matching the contract with the counterparty having a template of entitlement for the best said comparison.

12. A method as claimed in claim 11, whereby the step of pricing comprises the further steps of multiplying each elemental entitlement with each probability and summing the products.

13. A method as claimed in claim 11, comprising the further step of applying a discount factor to the sum to give a present day price relative to the time of maturity.

14. A method as claimed in claim 11, whereby the step of pricing comprises the further steps of applying each template of entitlement to the ordering party set of probabilities, multiplying the elemental entitlements with each probability, and summing the products to give the implied entitlement valuation.

15. A method as claimed in claim 14, comprising the further step of applying a discount rate to the sum to give a present day value relative to the time of maturity.

16. A method as claimed in claim 12, whereby the contract data further include a minimum expected entitlement, and the step of pricing further including the step of comparing the minimum expected entitlement against the counterparty prices to accept ones thereof for the step of matching.

17. A method as claimed in claim 12, whereby the contract data include a constraint on the one or more templates of entitlement applied in the step of giving the individual counterparty prices.

18. A method as claimed in claim 11, comprising the further step of periodically repricing the contract data for a matched contract to derive one or more implied entitlements valuations for one or more counterparties.

19. A method for the formulation of potential multi-party investment contracts, the method comprising the steps of:

inputting ordering party contract data relating to at least one phenomenon, each said phenomenon having a range of future outcomes and a future time of maturity, the contract data including a set of probabilities of occurrence for each outcome in said range and a consideration due to a counterparty at or after the time of matching;

inputting counterparty registering data including a set of probabilities of occurrence for each outcome in said range; and

pricing a potential contract for a said phenomenon from said contract data and said registering data, said step of pricing, for each counterparty, including;

applying at least one template of entitlement as a function of outcome to the set of probabilities included in the counterparty registering data to give one or more individual counterparty prices; and

applying the ordering party set of probabilities to each individual counterparty template of entitlement to derive an implied entitlement valuation.

20. A method for the formulation of multi-party investment contracts, the method comprising the steps of:

inputting ordering party contract data relating to at least one phenomenon, each said phenomenon having a range of future outcomes and a future time of maturity, the contract data including a set of probabilities of occurrence for each outcome in said range and a consideration due to a counterparty at or after the time of matching;

inputting counterparty registering data including a set of probabilities of occurrence for each outcome in said range; and

pricing and matching a contract for a said phenomenon from said contract data and said registering data, said step of pricing, for each counterparty, including;

dividing the consideration into components and for each component;

applying at least one template of entitlement as a function of outcome to the set of probabilities included in the counterparty registering data to give one or more individual counterparty prices; and

applying the ordering party set of probabilities to each individual counterparty template of entitlement to derive an implied component entitlement valuation;

said step of matching including;

determining which counterparty will provide the best entitlement on maturity by comparing the implied component entitlement valuations with the consideration; and

matching the contract with the counterparty having templates of entitlement for the best said component comparisons.