Separate trading of registered interest and principal of securities system, method and computer program product

• US 7,778,905 B2
• Filed: 08/24/2006
• Issued: 08/17/2010
• Est. Priority Date: 02/04/2004
• Status: Active Grant

• Current Assignee: Research Affiliates LLC (Research Affiliates Global Holdings LLC)
• Original Assignee: Research Affiliates LLC (Research Affiliates Global Holdings LLC)
• Inventors: Arnott, Robert D.
• Primary Examiner(s): Badii; Behrang
• Application Number:
  US11/508,888
• Publication Number:
  US 20070043643A1
• Time in Patent Office: 1,454 Days
• Field of Search: 705/35, 705/1, 705/37, 705/36.R
• US Class Current: 705/35
• 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

Abstract

A computer program product embodied on a computer readable medium may enable a computer processor to perform a method for generating a correlated investment. The method may include the steps of: discounting to present value one or more future liabilities at a discount rate of a bond that matures at the same time as the future liabilities; generating a correlated investment using an original investment amount and leverage funds; monitoring market information about a bond market using a computer; and recalibrating the correlated investment using the computer according to the market information, including: recommending at least one of buying or selling portions of the correlated investment as indicated by the market information. The future liabilities may be of a duration greater than the duration of the longest available bond issued by a sovereign.

Claims

1. A computer system for generating a long duration defeasement portfolio to minimize liability risk associated with a future obligation, the system comprising:

at least one host processor, wherein the at least one host processor is adapted to;

determine a liability duration of at least one long duration liability, said liability duration of said at least one long duration liability exceeding in duration a duration of a longest available bond issued by an applicable sovereign,

generate a long duration defeasement portfolio with a synthetic duration, said long duration defeasement portfolio serving to substantially match in value the future obligation associated with said at least one long duration liability,

analyze said at least one long duration liability;

select said investments to include in said long duration defeasement portfolio such that the synthetic duration of said long duration defeasement portfolio is substantially equal to said liability duration of said at least one long duration liability in order to make said value of said long duration defeasement portfolio available to substantially satisfy said future obligation of said at least one long duration liability; and

track effective yields generated from said long duration defeasement portfolio, wherein said effective yields are at least one of greater than zero, or greater than effective yields of a zero-coupon having a maximum available maturity closest to a maturity of said at least one long duration liability.

2. The computer system according to claim 1, wherein said host processor is further adapted to monitor market information to determine whether to adjust said long duration defeasement portfolio by communicating with an exchange computer, and to adjust as necessary said long duration defeasement portfolio according to said market information to maintain the synthetic duration of said long duration defeasement portfolio substantially equal to said liability duration of said at least one long duration liability, wherein said at least one long duration liability and said long duration defeasement portfolio change substantially identically with a change in interest rates of said market.

3. The computer system according to claim 2, wherein said host processor is further adapted to adjust said long duration defeasement portfolio, said host processor adapted to at least one of:

(a) places a portions of said long duration defeasement portfolio on sale as indicated by said market information, or (b) cause purchase of at least one other investment as indicated by said market information.

10. The system according to claim 1, wherein said liability duration of said at least one long duration liability exceeds a longest available separate trading of registered interest and principal of securities bond issued by an applicable sovereign.

11. The system according to claim 10, wherein said applicable sovereign comprises at least one of a National Treasury, U.S. Treasury, a state, a county, a city, a town, or a municipality.

13. The computer system according to claim 1, wherein said host processor is further adapted to manage a plurality of long duration defeasement portfolios simultaneously.

14. The computer system according to claim 1, wherein the long duration defeasement portfolio comprises at least one synthetically created separate trading of interest and principal security.

4. A computer-implemented method for generating a long duration defeasement portfolio, the method comprising:

determining, by at least one computer, a liability duration of at least one long duration liability, said liability duration of said at least one long duration liability exceeding in duration a duration of a longest available bond issued by an applicable sovereign;

generating, by the at least one computer, a long duration defeasement portfolio with a synthetic duration, said long duration defeasement portfolio serving to substantially match in value a future obligation associated with said at least one long duration liability, said generating comprising;

analyzing, by the at least one computer, said at least one long duration liability;

selecting, by the at least one computer, at least one investments to include in said long duration defeasement portfolio such that

the synthetic duration of said long duration defeasement portfolio is substantially equal to said liability duration of said at least one long duration liability in order to make said value of said long duration defeasement portfolio available to substantially satisfy said future obligation of said at least one long duration; and

tracking, by the at least one computer, effective yields generated from said long duration defeasement portfolio, wherein said effective yields are at least one of greater than zero, or greater than effective yields of a zero-coupon bond having a maximum available maturity closest to a maturity of said at least one long duration liability.

12. The method according to claim 4, wherein said long duration defeasement portfolio comprises at least one of:

a bond, a bond future, an interest rate swap, or an interest rate swap derivative.

15. The method according to claim 4, further comprising:

monitoring, by the at least one computer, market information to determine whether to adjust said long duration defeasement portfolio; and

adjusting as necessary, by the at least one computer, said long duration defeasement portfolio according to said market information to maintain the synthetic duration of said long duration defeasement portfolio substantially equal to said liability duration of said at least one long duration liability, wherein said adjusting comprises at least one of;

(a) selling, by the at least one computer, at least one portion of said long duration defeasement portfolio as indicated by said market information, or (b) buying, by the at least one computer, at least one other investment as indicated by said market information.

5. A computer program product embodied on a computer readable storage medium, the computer program product adapted to enable at least one computer processor to perform a method for generating a long duration defeasement portfolio, the method comprising:

determining by at least one computer a liability duration of at least one long duration liability, said liability duration of the at least one long duration liability exceeding in duration a duration of a longest available bond issued by an applicable sovereign;

generating by the at least one computer a long duration defeasement portfolio with a synthetic duration, said long duration defeasement portfolio serving to substantially match in value a future obligation associated with the at least one long duration liability, wherein said generating comprises;

analyzing, by the at least one computer, the at least one long duration liability,

selecting, by the at least one computer, at least one investment to include in said long duration defeasement portfolio such that the synthetic duration of said long duration defeasement portfolio is substantially equal to said liability duration of the at least one long duration liability in order to make a value of said long duration defeasement portfolio available to substantially satisfy said future obligation of the at least one long duration liability, and

tracking, by the at least one computer, effective yields generated from said long duration defeasement portfolio, wherein said effective yields are at least one of greater than zero, or greater than effective yields of a zero-coupon bond that has a maximum available maturity closest to a maturity of the at least one long duration liability.

6. The computer program product according to claim 5, wherein the at least one long duration liability comprises a stream of one or more future liabilities.

7. The computer program product according to claim 5, wherein the method comprises:

discounting, by the at least one computer, the at least one long duration liability by a discount rate, the discount rate comprising a yield of a zero-coupon Treasury bond, and wherein said zero-coupon Treasury bond has a maximum available maturity closest to a maturity of the at least one long duration liability.

16. The computer program product according to claim 5, wherein the method further comprises:

monitoring, by the at least one computer, market information to determine whether to adjust said long duration defeasement portfolio; and

adjusting, by the at least one computer, as necessary said long duration defeasement portfolio according to said market information to maintain the synthetic duration of said long duration defeasement portfolio substantially equal to said liability duration of the at least one long duration liability, wherein said adjusting comprises at least one of;

(a) placing, by the at least one computer, at least one portion of said long duration defeasement portfolio on sale as indicated by said market information, or (b) causing, by the at least one computer, purchase of at least one other investment as indicated by said market information.

8. A system for generating a long duration defeasement portfolio comprising:

means for determining, by at least one computer, a liability duration of at least one long duration liability, said liability duration of the at least one long duration liability exceeding in duration a duration of a longest available bond issued by an applicable sovereign;

means for generating, by the at least one computer, a long duration defeasement portfolio with a synthetic duration, said long duration defeasement portfolio serving to substantially match in value a future obligation associated with the at least one long duration liability, said means for generating comprising;

means for analyzing, by the at least one computer, the long duration liability,

means for selecting, by the at least one computer, at least one investments to include in said long duration defeasement portfolio such that the synthetic duration of said long duration defeasement portfolio is substantially equal to said liability duration of the at least one long duration liability in order to make a value of said long duration defeasement portfolio available to substantially satisfy said future obligation of the at least one long duration liability, and

means for tracking, by the at least one computer, effective yields generated from said long duration defeasement portfolio, wherein said effective yields are at least one of greater than zero, or greater than effective yields of a zero-coupon bond that has a maximum available maturity closest to a maturity of the at least one long duration liability.

17. The system according to claim 8, further comprising:

means for monitoring, by the at least one computer, market information to determine whether to adjust said long duration defeasement portfolio; and

means for adjusting, by the at least one computer, as necessary said long duration defeasement portfolio according to said market information to maintain the synthetic duration of said long duration defeasement portfolio substantially equal to said liability duration of the at least one long duration liability, wherein said means for adjusting comprises at least one of;

(a) means for placing at least one portion of said long duration defeasement portfolio on sale as indicated by said market information, or (b) means for causing purchase of at least one other investment as indicated by said market information.

9. A system adapted to generate a long duration defeasement portfolio, the system comprising:

at least one host computer adapted to;

determine a liability duration of at least one long duration liability, said liability duration of the at least one long duration liability exceeding in duration a duration of a longest available bond issued by an applicable sovereign,

generate a long duration defeasement portfolio with a synthetic duration, said long duration defeasement portfolio serving to substantially match in value a future obligation associated with the at least one long duration liability, wherein said at least one host computer is further adapted to analyze the at least one long duration liability,

select at least one investments to include in said long duration defeasement portfolio such that the synthetic duration of said long duration defeasement portfolio is substantially equal to the liability duration of the at least one long duration liability in order to make a value of said long duration defeasement portfolio available to substantially satisfy said future obligation of the at least one long duration liability, and

track effective yields generated from said long duration defeasement portfolio, wherein said effective yields are at least one of greater than zero, or greater than effective yields of a zero-coupon bond that has a maximum available maturity closest to a maturity of the at least one long duration liability.

18. The system according to claim 9, comprising the system wherein said at least one host computer is further adapted to:

monitor market information to determine whether to adjust said long duration defeasement portfolio; and

adjust as necessary said long duration defeasement portfolio according to said market information to maintain the synthetic duration of said long duration defeasement portfolio substantially equal to the liability duration of the long duration liability, wherein said at least one host computer adapted to adjust comprises said at least one host computer adapted to at least one of;

(a) place at least one portion of said long duration defeasement portfolio on sale as indicated by said market information, or (b) cause a purchase of at least one other investment as indicated by said market information.