Apparatus and process for calculating an option

• US 6,263,321 B1
• Filed: 03/04/1999
• Issued: 07/17/2001
• Est. Priority Date: 07/29/1994
• Status: Expired due to Fees

• Current Assignee: Economic Inventions, LLC, Ramey Lane, LLC
• Original Assignee: Economic Inventions, LLC
• Inventors: Daughtery, Vergil L. III
• Primary Examiner(s): Stamber, Eric W.
• Assistant Examiner(s): Irshadullah, M.
• Application Number:
  US09/262,663
• Time in Patent Office: 866 Days
• Field of Search: 705/1, 705/36, 705/37
• 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 40/04 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 40/08 Insurance

Abstract

The present invention introduces an apparatus and process which may be implemented on a vast variety of computer systems. The apparatus and process of the present invention use a computer system to receive and store data representative of a particular asset, a type of option (call or put), requested exercise price and a multitude of other variables related to the asset. The apparatus and process then generate data representative of an option premium. The data representative of the option may then be used for transacting an option, as the basis for determining a correlated expiring option premium, or to determine the premium of an asset relatable to a corresponding option.

Claims

1. A method of determining a premium on a particular asset, the method comprising the steps of:

receiving data representative of the particular asset, an asset type, an exercise price for the particular asset, the current price of the particular asset, the historic price volatility of the particular asset and the margin requirement for the particular asset;

generating an implied time using an option pricing algorithm and the asset type, the exercise price for the particular asset, the current price of the particular asset, the historic price volatility of the particular asset and the margin requirement for the particular asset;

generating a premium for the asset by using an expiring option premium algorithm and the implied time; and

executing a transaction including a purchase, sale or trade of said asset utilizing said premium.

2. The method of claim 1, wherein said premium generating step further includes that steps of generating an expirationless option premium for the asset, using the expirationless option premium to determine a corresponding expiring option premium, and using the expiring option premium to determine a premium for the particular asset.

3. The method of claim 1 wherein said particular asset is an option selected from the group consisting of:

vanilla options;

asian options;

barrier options;

binary options;

chooser options;

compound options;

crack/spread options;

currency translated options;

jump options;

lookback options;

rainbow options;

options on U.S. or foreign “

stripped”

government securities divided into two or more instruments of principal and interest or price and dividend;

options on stripped corporate, agency, and municipal securities, notes, bills and certificates of deposit;

options on callables; and

options on odd-first, -last, -middle, or securities with varying coupon/dividend periods.

4. The method of claim 1 wherein said particular asset is selected from the group consisting of:

equity, bonds, loans, private placements, forward contracts, futures contracts, swaps, forward swaps/delayed start swaps, break forwards, straddles/strangles/butterflies, reverse floating rate loan/bull floating rate notes, dual currency bonds, callable/puttable bonds, puttable stock, bond with warrant, convertible bonds, liquid yield option notes, commodity-linked bonds, auction rate notes/debentures, collaterallized mortgage obligations/real estate mortgage investment conduits, commercial real-estate backed bonds, credit enhanced debt securities, dollar bils, foreign exchange paper, floating/bate sensitive notes, floating rate tax-exempt revenue bonds, increasing rate notes, indexed currency option notes or principal exchange rate linked securities, caps/floors/collars, interest rate reset notes, mortgage pass-through certificates, negotiable certificates of deposit, adjustable tender securities, puttable/extendable notes, real yield securities, receivable pay-through securities, remarketed reset notes, stripped mortgage backed securities, stripped treasuries/municipals, variable coupon renewable notes, variable rate renewable notes, yield curve/maximum rate notes, adjustable rate preferred stock, auction rate preferred stock, convertible adjustable preferred stock, remarketed preferred stock, single point adjustable rate stock, state rate auction preferred stock, variable cumulative preferred stock, adjustable rate convertible debt, convertible exchangeable preferred stock, convertible reset debentures, debt with mandatory common stock purchase contracts, exchangeable preferred stock, synthetic convertible debt, zero coupon convertible debt, puttable common stock.

5. A system for determining an option premium comprising:

a processing unit;

a memory storage device;

an output interface for prompting for input of data and providing results;

an input interface for receiving data;

a program module, stored in the memory storage device for providing instructions to the processing unit;

the processing unit, responsive to the instruction of the program module, being operative to;

prompt a data source, over the output interface, to input data representative of a particular asset;

receive a first asset signal over the interface, wherein the first asset signal is representative of data for the particular asset;

prompt the data source, over the output interface, to input data representative of an option type;

receive an option signal over the interface, wherein the option signal is representative of data for the option type;

prompt the data source, over the output interface, to input data representative of an exercise price for the particular asset;

receive an exercise price signal over the input interface, wherein the exercise price signal is representative of data for the exercise price for the particular asset;

receive a market data signal over the input interface, wherein the market data signal is representative of data related to the current price for the particular asset, the current risk-free interest rate, the historic price volatility, and the margin requirement for the particular asset; and

an expiring option premium module, stored in the memory storage device for providing instructions to the processing unit in response to receiving the asset, option, exercise price and market data signals over the input interface, and responsive to the instruction of the program module and the instructions of the expiring option premium module, the processing unit being operative to;

set each variable of the option premium module to its associated data value received over the input interface;

equate an exercise price variable equal to the current price for the particular asset data;

equate an option premium variable equal to the margin requirement for the particular asset data;

generate an implied time;

equate the exercise price variable equal to the exercise price data represented in the exercise price signal;

generate the option premium based on the implied time; and

enable a transaction including a purchase, sale or trade of an option to purchase, sell or trade said particular asset utilizing said option of premium.

6. A method of operating a computer system for calculating an expirationless option premium on a particular asset, the method comprising the steps of:

receiving an asset signal representative of data for the particular asset;

receiving an option signal representative of data for the option type;

receiving an exercise price signal representative of data for the exercise price for the particular asset;

receiving an market data signal representative of data including the extinction date for the particular asset; and

in response to said asset, option, exercise price and market data signals and using an expiring option premium algorithm;

(i) setting each variable of the option premium algorithm to its associated data value received in said asset, option and exercise price signal receiving steps respectively,

(ii) setting time variable equal to the extinction date for particular asset data from said market data signal,

(iii) generating data representative of the expirationless option premium and

(iv) executing a transaction including a purchase, sale or trade of an option to purchase, sell or trade said asset utilizing said option premium.

7. The method of claim 6, wherein said market data signal is further representative of data related to a percentage for an extinction band.

8. The method of claim 7, further including the step of setting the asset price variable equal to one minus the percentage data times the current price for the particular asset data if the option signal is representative of data for a put option.

9. The method of claim 7, further including the step of setting the asset price variable equal to one plus the percentage data times the current price for the particular asset data if the option signal is representative of data for a call option.

10. The method of claim 6, wherein said market data signal is further representative of data related to the current price for the particular asset, the current risk-free interest rate, and the historic price volatility for the particular asset.

11. The process of claim 10, wherein said market data signal is further representative of data related to a dollar amount tick for an extinction band and a dollar amount for the extinction band and, prior to said data generating step, further including the step of setting the asset price variable equal to the extinction band data divided by the tick data plus the current price for the particular asset data if the option type is a call.

12. The process of claim 10, wherein said market data signal is further representative of data related to a dollar amount tick for an extinction band and a dollar amount for the extinction band and, prior to said data generating step, further including the step of setting the asset price variable equal to the current price for the particular asset data minus the extinction band data divided by the tick data if the option type is a put.

13. A data processing apparatus for use in transacting an expirationless option on a particular asset, said data processing apparatus comprising:

(A) means for receiving data representative of a particular asset, an option type, an exercise price for the particular asset, the current price of the particular asset, the historic price volatility of the particular asset and the margin requirement for the particular asset;

(B) a storage medium adapted to store the data received by said receiving means and an expiring option premium algorithm;

(C) means, responsive to the data received by said receiving means, for generating data representative of an option premium for the expirationless option on the asset using the expiring option premium algorithm;

(D) means for outputting the option premium data; and

(E) means for transacting the expirationless option using the option premium data.

14. A process of operating a computer system for transacting an expirationless option, said process comprising the steps of:

(A) prompting a user to input data representative of a particular asset;

(B) receiving a first signal from the user, wherein said first signal is representative of data for the particular asset;

(C) prompting the user to input data representative of an option type;

(D) receiving a second signal from the user, wherein said second signal is representative of data for the option type;

(E) prompting the user to input data representative of an exercise price for the particular asset;

(F) receiving a third signal from the user, wherein said third signal is representative of data for the exercise price for the particular asset;

(G) receiving a fourth signal from a data source or the user, wherein said fourth signal is representative of data related to the current price for the particular asset, the current risk-free interest rate, the historic price volatility for the particular asset and the margin requirement for the particular asset;

(H) in response to said first, second, third and fourth signals and using an expiring option premium algorithm;

(i) setting each variable of the option premium algorithm to its associated data value received in steps (B) and (G),

(ii) setting the exercise price variable equal to the current price for the particular asset data from said fourth signal,

(iii) setting the option premium variable equal to the margin requirement for the particular asset data, and

(iv) generating data representative of an implied time; and

(I) using the expiring option premium algorithm;

(i) setting the exercise price variable equal to the exercise price data of said third signal, and

(ii) generating data representative of an option premium for use in transacting the expirationless option.

15. The process of claim 14, wherein said second signal is representative of data for the option type selected from the group consisting of:

a put or a call.

16. The process of claim 14, further comprising the step of:

(J) recording the option premium data on a storage medium.

17. The process of claim 14, further comprising the step of:

(J) outputting the option premium data.

18. A process of operating a computer system for transacting an expirationless option, said process comprising the steps of:

(A) prompting a user to input data representative of a particular asset;

(B) receiving a first signal from the user, wherein said first signal is representative of data for the particular asset;

(C) prompting the user to input data representative of an option type;

(D) receiving a second signal from the user, wherein said second signal is representative of data for the option type;

(E) prompting the user to input data representative of an exercise price for the particular asset;

(F) receiving a third signal from the user, wherein said third signal is representative of data for the exercise price for the particular asset;

(G) receiving a fourth signal from a data source of the user, wherein said fourth signal is representative of data related to the current price for the particular asset, the current risk-free interest rate, the historic price volatility for the particular asset and the extinction date for the particular asset; and

(H) in response to said first, second, third and fourth signals and using an expiring option premium algorithm;

(i) setting each variable of the option premium algorithm to its associated data value received in steps (B), (F) and (G),

(ii) setting time variable equal to the extinction date for particular asset data from said fourth signal, and

(iii) generating data representative of an option premium for use in transacting an expirationless option.

19. The process of claim 18, wherein said second signal is representative of data for the option type selected from the group consisting of:

a put or a call.

20. The process of claim 19, wherein said fourth signal is further representative of data related to a percentage for an extinction band, and wherein step (H), prior to substep (iii), further comprises the step of setting the asset price variable equal to the percentage data plus one times the current price for the particular asset data if the option type is a call or setting the asset price variable equal to one minus the percentage data times the current price for the particular asset data if the option type is a put.

21. The process of claim 19, wherein said fourth signal is further representative of data related to a dollar amount tick for an extinction band and a dollar amount for the extinction band, and wherein step (H), prior to substep (iii), further comprises the step of setting the asset price variable equal to the extinction band data divided by the tick data plus the current price for the particular asset data if the option type is a call or setting the asset price variable equal to the current price for the particular asset data minus the extinction band data divided by the tick data if the option type is a put.

22. The process of claim 18, further comprising the step of:

(I) recording the option premium data on a storage medium.

23. The process of claim 18, further comprising the step of:

(I) outputting the option premium data.

24. A method for transacting an expirationless option contract for the optional sale or purchase of an underlying asset, said method comprising the steps of:

providing an expirationless option contract having a value related to the value of an underlying asset and granting an owner of the contract a right, but not an obligation, to sell or buy said underlying asset at a predetermined price;

selling, buying, or trading said expirationless option contract; and

providing a guarantee of performance of said expirationless option contract by a part other than an issuer of the underlying asset.

25. A method in accordance with claim 24 wherein said selling, buying, or trading of said contract is regulated by a law or regulation governing transactions in securities.

26. A method in accordance with claim 24, wherein by:

said contract has no fixed expiration period.

27. A method in accordance with claim 24, wherein said selling, buying or trading is regulated a law or regulation governing transactions in securities.

28. A method in accordance with claim 24, wherein said contract is characterized by being limited to contingent claims.

29. A method in accordance with claim 24, wherein said contract is an options contract.

30. A method in accordance with claim 24, wherein said contract is an American options contract.

31. The method of claim 24, wherein said expirationless option contract has a price calculated in accordance with the following steps:

receiving data representative of the underlying value of the asset;

generating an implied time to expiration; and

generating a premium for the contract related to the implied time.

32. A method for transacting an expirationless option contract, wherein the contract:

(a) has a value related to an underlying asset specified in the contract, and

(b) includes a right but not an obligation for a purchaser of the contract to execute the contract;

said method including the steps of;

specifying a price for the contract, consistent with the contract having no expiration date;

purchasing, selling, or trading the contract; and

providing a guarantee of performance of the contract by a party other than the issuer of the underlying asset.