Derivative securities and system for trading same

• US 7,409,367 B2
• Filed: 05/04/2001
• Issued: 08/05/2008
• Est. Priority Date: 05/04/2001
• Status: Expired due to Fees

• Current Assignee: Delta Rangers, Inc.
• Original Assignee: Delta Rangers, Inc.
• Inventors: McGill, Bradley J., Winston, Evan J.
• Primary Examiner(s): Kazimi; Hani M.
• Assistant Examiner(s): Akintola; Olabode
• Application Number:
  US09/857,496
• Publication Number:
  US 20030101125A1
• Time in Patent Office: 2,650 Days
• Field of Search: 705 37- 40
• US Class Current: 705/37
• 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

A derivative security whose value is determined by whether an underlying instrument will trade above or below a given price at or by a given time. The price of the underlying instrument in the inventive instrument must move a certain amount in a certain direction in a limited amount of time. If it does, that trade yields a fixed amount of money for the acceptor of the contract (510, 545). If it does not, that acceptor loses the premium lie paid for the contract (510, 545).

Claims

1. A method of creating and trading a group of at least first and second related financial products, comprising:

(a) identifying an interest rate, said interest rate having a first value corresponding to a value of the interest rate at a first time;

(b) identifying an expiry and a fixed payout;

(c) identifying a first premium to be paid by a buyer of the first financial product when the first financial product is issued;

(d) selecting a first value change in the interest rate, wherein the first value change comprises an absolute change in value of the interest rate and a direction of change in value of the interest rate;

(e) subsequent to the identifying of the fixed payout in step (b), executing a first transaction between a first seller and the buyer of the first financial product wherein the first seller receives the first premium from the buyer of the first financial product and in exchange agrees to pay the buyer of said first financial product the fixed payout if, between the first time and expiry, the value of the interest rate meets a first strike rate, wherein the first strike rate is a sum of the first value and the first value change;

wherein said first financial product is worth nothing to the buyer of the first financial product if, between the first time and expiry, the value of the interest rate fails to meet the first strike rate; and

wherein the first seller represents the only counterparty of the buyer of the first financial product in the first transaction;

(f) identifying a second premium to be paid by a buyer of the second financial product when the second financial product is issued, wherein the second premium is different from the first premium;

(g) selecting a second value change in the interest rate, wherein the second value change is different from the first value change, and the second value change comprises an absolute change in value of the interest rate and a direction of change in value of the interest rate, wherein the absolute change in value associated with the second value change is greater than the absolute change in value associated with first value change, and wherein the direction of change in value associated with the first value change is identical to the direction of change in value associated with the second value change;

(h) subsequent to the identifying of the fixed payout in step (b), executing a second transaction between a second seller and the buyer of the second financial product wherein the second seller receives the second premium from the buyer of the second financial product and in exchange agrees to pay the buyer of said second financial product the fixed payout if between the first time and expiry, the value of the interest rate meets a second strike rate, wherein the second strike rate is a sum of the first value and the second value change;

wherein said second financial product is worth nothing to the buyer of the second financial product if, between the first time and expiry, the value of the interest rate fails to meet the second strike rate; and

wherein the second seller represents the only counterparty of the buyer of the second financial product in the second transaction; and

(i) providing a common electronic platform where the first transaction is executed, the second transaction is executed and a plurality of additional buyers execute further transactions to purchase further financial products selected from the group consisting of;

(i) financial products defined by the expiry and the fixed payout, and having a premium identical to the first premium and a strike rate identical to the first strike rate, and (ii) financial products defined by the expiry and the fixed payout, and having a premium identical to the second premium and a strike rate identical to the second strike rate, and wherein said plurality of additional buyers include one or more buyers that are not counterparties to the first or second transaction.

2. The method of claim 1, wherein said first and second financial products are offered on a trading exchange, and may be accepted by another participant in the trading exchange.

3. A machine-readable medium for creating and trading a group of at least first and second related financial products, the medium having instructions stored thereon which when executed by a processor, cause the processor to:

identify an interest rate, said interest rate having a first value corresponding to a value of the interest rate at a first time;

identify an expiry and a fixed payout;

identify a first premium to be paid by a buyer of the first financial product when the first financial product is issued;

select a first value change in the interest rate, wherein the first value change comprises an absolute change in value of the interest rate and a direction of change in value of the interest rate; and

subsequent to when the fixed payout is identified, execute a first transaction between a first seller and the buyer of the first financial product wherein the first seller receives the first premium from the buyer of the first financial product and in exchange agrees to pay the buyer of said first financial product the fixed payout if, between the first time and expiry, the value of the interest rate meets a first strike rate, wherein the first strike rate is a sum of the first value and the first value change;

wherein said first financial product is worth nothing to the buyer of the first financial product if, between the first time and expiry, the value of the interest rate fails to meet the first strike rate; and

wherein the first seller represents the only counterparty of the buyer of the first financial product in the first transaction;

identify a second premium to be paid by a buyer of the second financial product when the second financial product is issued, wherein the second premium is different from the first premium;

select a second value change in the interest rate, wherein the second value change is different from the first value change, and the second value change comprises an absolute change in value of the interest rate and a direction of change in value of the interest rate, wherein the absolute change in value associated with the second value change is greater than the absolute change in value associated with first value change, and wherein the direction of change in value associated with the first value change is identical to the direction of change in value associated with the second value change; and

subsequent to when the fixed payout is identified, execute a second transaction between a second seller and the buyer of the second financial product wherein the second seller receives the second premium from the buyer of the second financial product and in exchange agrees to pay the buyer of said second financial product the fixed payout if, between the first time and expiry, the value of the interest rate meets a second strike rate, wherein the second strike rate is a sum of the first value and the second value change;

wherein said second financial product is worth nothing to the buyer of the second financial product if, between the first time and expiry, the value of the interest rate fails to meet the second strike rate; and

wherein the second seller represents the only counterparty of the buyer of the second financial product in the second transaction; and

provide a common electronic platform where the first transaction is executed, the second transaction is executed and a plurality of additional buyers execute further transactions to purchase further financial products selected from the group consisting of;

(i) financial products defined by the expiry and the fixed payout, and having a premium identical to the first premium and a strike rate identical to the first strike rate, and (ii) financial products defined by the expiry and the fixed payout, and having a premium identical to the second premium and a strike rate identical to the second strike rate, and wherein said plurality of additional buyers include one or more buyers that are not counterparties to the first or second transaction.