Earnings derivative financial product

• US 7,716,107 B1
• Filed: 02/28/2008
• Issued: 05/11/2010
• Est. Priority Date: 02/03/2006
• 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: Variankaval, Rama, Ghartey, Joseph, Nabar, Santosh, Calil, Cassio
• Primary Examiner(s): Trammell; James P
• Assistant Examiner(s): Malhotra; Sanjeev
• Application Number:
  US12/039,193
• Time in Patent Office: 803 Days
• Field of Search: 705/14, 705/30, 705/35, 705/36.R, 705/37, 705/52, 707/4, 435/7.1
• US Class Current: 705/36.00R
• 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 40/12 Accounting
• CPC Class Codes: Y10S 707/95 Financial

Abstract

A system for and method of using a financial instrument to take a view on a price-to-earnings ratio for a set of one or more equities. The system and method may be used to commodify the price-to-earnings ratio for one or more equities, such as a stock or an index. The system and method may include a financial instrument that allows a user to take a view on an earnings, or ratio comprising price and earnings, for underlying equities.

Claims

1. An at least partially computer implemented method of using earnings to value a financial product based upon at least one equity as part of a transaction, the method comprising:

selecting an earnings function, the earnings function being associated with a set comprising at least one equity, the earnings function outputting a strike earnings;

selecting a quantity, the quantity being associated with the set comprising at least one equity;

calculating, using a programmed computer, a payoff using the earnings function and the quantity, wherein the calculating occurs after the selecting the earnings function; and

conducting the transaction, subsequent to the calculating, wherein the payoff comprises at least part of the transaction.

2. The method of claim 1, wherein the earnings function comprises an empirically measured earnings value of a set comprising at least one equity, wherein the empirically measured earnings value is empirically measured subsequent to the selecting the earnings function.

3. The method of claim 1, wherein the earnings function is a constant function, the constant function representing a strike earnings.

4. The method of claim 1, wherein the earnings function comprises at least one of a floor and a ceiling.

5. The method of claim 1, further comprising repeating the calculating and the conducting.

6. The method of claim 1, wherein the transaction is part of a swap.

7. The method of claim 1, wherein the quantity comprises a notional number of equities.

8. The method of claim 1, wherein the set comprising at least one equity is selected from the group consisting of:

an index, a basket of stocks, and a stock.

9. The method of claim 1, wherein the financial product comprises a financial product selected from the group consisting of:

a bond, a put option, a call option, an American option, a European option, and a swaption.

10. An at least partially computer implemented method of using an earnings to value a financial product based upon at least one equity as part of a transaction, the method comprising:

selecting an algorithm for calculating an earnings on at least one future date, the earnings being associated with a set comprising at least one equity, the algorithm outputting a strike earning;

selecting a quantity, the quantity being associated with the set comprising at least one equity;

calculating, using a programmed computer, a payoff using an output produced by the algorithm and the quantity, wherein the calculating occurs after the selecting the algorithm; and

conducting the transaction, subsequent to the calculating, wherein the payoff comprises at least part of the transaction.

11. The method of claim 10, wherein the algorithm comprises empirically measuring an earnings value of a set comprising at least one equity, wherein the measuring occurs subsequent to the selecting the algorithm.

12. The method of claim 10, wherein the algorithm produces a single, predetermined values the value comprising a strike earnings.

13. The method of claim 10, wherein the algorithm comprises at least one of a floor and a ceiling.

14. The method of claim 10, further comprising repeating the calculating and the conducting.

15. The method of claim 10, wherein the transaction is part of a swap.

16. The method of claim 10, wherein the quantity comprises a notional number of equities.

17. The method of claim 10, wherein the set comprising at least one equity is selected from the group consisting of:

an index, a basket of stocks, and a stock.

18. The method of claim 10, wherein the financial product comprises a financial product selected from the group consisting of:

a bond, a put option, a call option, an American option, a European option, and a swaption.