System for pricing financial instruments

• US 7,979,336 B2
• Filed: 02/25/2008
• Issued: 07/12/2011
• Est. Priority Date: 03/18/2002
• Status: Active Grant

• Current Assignee: NYSE American LLC (Intercontinental Exchange, Inc.)
• Original Assignee: NYSE Amex LLC (Intercontinental Exchange, Inc.)
• Inventors: Norman, Terry, Gastineau, Gary L., Alexander, Carol, Weber, Clifford J., Baker, Charles A., MacQueen, Jason
• Primary Examiner(s): Kazimi; Hani
• Assistant Examiner(s): Vyas; Abhishek
• Application Number:
  US12/072,417
• Publication Number:
  US 20080177676A1
• Time in Patent Office: 1,233 Days
• Field of Search: 705 35- 37
• 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

Abstract

A method of determining an estimate of the market value of a traded unit of a financial instrument, and apparatus for carrying out the method, said instrument comprising a fund of individually priced securities and the exact composition of said fund being withheld from the market, said method comprising selecting a plurality of mutually independent risk factors, each risk factor being representative of market behaviour estimated to be significant to the price behaviour of the traded unit, obtaining information from a third party holding information regarding the composition of said fund regarding the actual significance of said risk factors to the value of said traded unit, and calculating a value for said traded unit on the basis of said significances.

Claims

1. A method for hedging an investment in an actively managed exchange traded fund comprising:

sending, from a first computer, a set of instruments to be used as hedging instruments over a computer network to a second computer;

calculating by the second computer a set of coefficients corresponding to the set of instruments, wherein a portfolio constructed by applying corresponding coefficients to each instrument has substantially the same levels of risk associated with risk factors as the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors;

receiving output from the second computer comprising a corresponding coefficient for each instrument to be used as a hedging instrument; and

constructing a hedging portfolio by applying the corresponding coefficient to each instrument to be used as a hedging instrument;

wherein the hedging portfolio has substantially the same levels of risk associated with risk factors as the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors, and wherein the actual composition of the actively managed exchange traded fund is unknown to an investor who uses the hedging portfolio to hedge an investment in the actively managed exchange traded fund.

2. The method of claim 1, wherein the investor sends the set of instruments to be used as hedging instruments.

3. The method of claim 1, wherein the second computer is an independent third party computer.

4. The method of claim 1, wherein the investor is a trader, a market maker, or a specialist.

5. The method of claim 1, wherein a set of instruments held by the actively managed exchange traded fund is published.

6. A method for hedging an investment in an actively managed exchange traded fund comprising:

calculating by a second computer data including a set of coefficients corresponding to a basket of instruments, wherein a portfolio constructed by applying corresponding coefficients to each instrument has substantially the same levels of risk associated with risk factors as the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors;

outputting and sending by the second computer the set of coefficients to a first computer over the computer network;

receiving output from the second computer comprising data indicative of the basket of instruments, wherein the basket of instruments has substantially the same levels of risk associated with risk factors as the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors;

constructing by the first computer a hedging portfolio, by applying the corresponding coefficients to each instrument, in the basket of instruments, wherein the hedging portfolio having substantially the same levels of risk associated with the risk factors as the levels of risk of the basket of instruments associated with the risk factors; and

receiving output from the first computer comprising the hedging portfolio;

wherein

the actual composition of the actively managed exchange traded fund is unknown to an investor who uses the hedging portfolio to hedge an investment in the actively managed exchange traded fund.

7. The method of claim 6, wherein the second computer is an independent third party computer.

8. The method of claim 6, wherein the second computer is an exchange computer.

9. The method of claim 6, wherein the investor is a trader, a market maker, or a specialist.

10. The method of claim 6, wherein a set of instruments held by the actively managed exchange traded fund is published.

11. A method for calculating a hedging portfolio for hedging an investment in an actively managed exchange traded fund, comprising:

receiving, from a first computer over a computer network, a set of instruments to be used as hedging instruments to hedge an investment in the actively managed exchange traded fund;

calculating by a second computer a set of coefficients corresponding to the set of instruments, wherein a portfolio constructed by applying corresponding coefficients to each instrument has substantially the same levels of risk associated with risk factors as the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors;

outputting and sending by the second computer the set of coefficients to the first computer over the computer network;

calculating by the first computer the portfolio constructed by applying corresponding coefficients to each instrument; and

receiving output from the first computer comprising the portfolio constructed by applying the corresponding coefficients to each instrument;

wherein the actual composition of the actively managed exchange traded fund is unknown to an investor who uses the hedging portfolio to hedge hedging an investment in the actively managed exchange traded fund.

12. The method of claim 11, wherein a set of instruments held by the actively managed exchange traded fund is published.

13. The method of claim 11, wherein the first computer is a third party computer.

14. The method of claim 11, wherein the first computer is a fund manager computer or an administrator/custodian computer.

15. A method to allow hedging an investment in an actively managed exchange traded fund, comprising:

calculating by a first computer a set of coefficients corresponding to a set of instruments, wherein a portfolio constructed by applying corresponding coefficients to each instrument has substantially the same levels of risk associated with risk factors as the levels of risk of the portfolio of securities held in the actively managed exchange traded fund associated with the risk factors;

constructing by the first computer a portfolio by applying the corresponding coefficients to each instrument, in the set of instruments, wherein the portfolio having substantially the same levels of risk associated with the risk factors as the levels of risk of the set of instruments associated with the risk factors;

sending by the first computer, data indicating the portfolio constructed by applying the corresponding coefficients to each instrument on the first computer over a computer network to a second computer; and

outputting the portfolio by the second computer;

wherein the actual composition of the actively managed exchange traded fund is unknown to an investor who uses the hedging portfolio to hedge hedging an investment in the actively managed exchange traded fund.

16. The method of claim 15, wherein the first computer is a fund manager computer or an administrator/custodian computer.

17. The method of claim 15, wherein the first computer is an exchange computer.

18. The method of claim 15, wherein the second computer is a trader, market maker, or specialist computer.