Digital options having demand-based, adjustable returns, and trading exchange therefor

• US 7,996,296 B2
• Filed: 09/10/2001
• Issued: 08/09/2011
• Est. Priority Date: 07/21/1999
• Status: Active Grant

• Current Assignee: Longitude LLC
• Original Assignee: Longitude LLC
• Inventors: Lange, Jeffrey
• Primary Examiner(s): Hammond, III; Thomas M
• Application Number:
  US09/950,498
• Publication Number:
  US 20020147670A1
• Time in Patent Office: 3,620 Days
• Field of Search: 705/37
• US Class Current: 705/37
• 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 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/08 Insurance
• CPC Class Codes: G06Q 50/34 Betting or bookmaking, e.g. Internet betting
• CPC Class Codes: G07F 17/3288 Betting, e.g. on live events, bookmaking
• CPC Class Codes: G07F 7/10 together with a coded signal , e.g. in the form of personal identification information, like personal identification number [PIN] or biometric data

Abstract

Methods and systems for conducting demand-based trading are described. In one embodiment, states are established, each state corresponding to at least one possible outcome of an event of economic significance. An investment amount may be determined as a function of a selected outcome, a desired payout, and a total amount invested in the states. In another embodiment, an investment amount may be determined as a function of parameters of a financial product. In another embodiment, a payout may be determined as a function of an investment amount, a selected outcome, a total amount invested in the states, and an identification of a state corresponding to an observed outcome of the event.

Claims

1. A method of an investment management machine for assisting in conducting demand-based trading, comprising:

establishing a plurality of states, each state corresponding to at least one possible outcome of an event of economic significance;

storing, by a processor of the investment management machine and in a storage device of the investment management machine, the plurality of states;

receiving, by the investment management machine and via a user interface, an indication of a desired payout and an indication of a selected outcome;

storing, by the processor and in the storage device, the indication of the desired payout and the indication of the selected outcome;

associating, by the processor, the selected outcome with at least one of the plurality of states;

determining, by the processor and substantially in real time, an investment amount as a function of the selected outcome, the desired payout and a total amount invested in the plurality of states; and

outputting the investment amount;

wherein the investment amount is pledged to be paid, such pledge occurring prior to occurrence of the event of economic significance, and the desired payout is payable after and conditional upon occurrence of the selected outcome of the event of economic significance.

2. The method according to claim 1, wherein the receiving step includes receiving an indication of a limit on the investment amount.

3. The method according to claim 2, wherein the determining step includes determining the investment amount as a function of the selected outcome, the desired payout, the limit on the investment amount and the total amount invested in the plurality of states.

4. The method according to claim 1, wherein the establishing step includes establishing the plurality of states in an auction.

5. The method according to claim 1, wherein the determining step includes determining the investment amount prior to the occurrence of the event.

6. The method according to claim 1, further comprising:

establishing a termination criterion; and

wherein the receiving step includes receiving an order prior to fulfilling the termination criterion, the order including the indication of the selected outcome and the indication of the desired payout.

7. The method according to claim 6, wherein the step of receiving the order includes receiving an indication of a limit on the investment amount for the order.

8. The method according to claim 7, wherein the determining step includes determining the investment amount of the order as a further function of the limit on the investment amount.

9. The method according to claim 7, wherein the determining step includes determining the total amount invested in the plurality of states as a function of the selected outcome, the desired payout and the limit of the order, and selected outcomes and desired payouts and limits indicated in at least one additional order.

10. The method according to claim 6, wherein the determining step includes determining the total amount invested in the plurality of states as a function of the selected outcome and the desired payout of the order, and selected outcomes and desired payouts indicated in at least one additional order.

11. The method according to claim 6, wherein the plurality of states are established in an auction, the auction including at least one additional order indicating a respective desired payout and a respective selected outcome, the method further comprising:

placing the order and the at least one additional order prior to fulfillment of the termination criterion;

executing the order and the at least one additional order after fulfillment of the termination criterion;

determining an executed payout allocatable to the order as a function of (a) the desired payouts and (b) the selected outcomes of each of the order and the at least one additional order in the auction, wherein the determined executed payout is allocated to the order upon satisfaction of a condition that the selected outcome in the order becomes an observed outcome of the event; and

allocating a payout to the order as a function of the determined executed payout for the order and an identification of at least one state corresponding to the observed outcome of the event.

12. The method according to claim 6, wherein the receiving step includes receiving at least one additional order indicating a respective desired payout, a respective selected outcome, and a respective limit on a respective investment amount for the at least one additional order.

13. The method according to claim 7, wherein the plurality of states are established in an auction, the auction including at least one additional order each indicating a respective desired payout, a respective selected outcome, and a respective limit on an investment, and wherein the step of determining the investment amount includes determining the total amount invested in the auction as a function of the desired payouts, the selected outcomes, and the limits on the investment amounts of each of the order and the at least one additional order in the auction, the method further comprising:

determining an executed payout to be allocated to the order if the selected outcome in the order becomes an observed outcome of the event as a function of the desired payouts, the selected outcomes, and the limits on the investment amounts of each of the order and the at least one additional order in the auction;

placing the order and the at least one additional order prior to fulfillment of the termination criterion;

executing the order and the at least one additional order after fulfillment of the termination criterion; and

allocating a payout to the order as a function of the executed payout for the order and an identification of at least one state corresponding to the observed outcome of the event.

14. The method according to claim 7, wherein:

the plurality of states are established in an auction, the auction including at least one additional order indicating a respective desired payout, a respective selected outcome, and a respective limit on an investment amount;

the step of determining the investment amount includes determining the total amount invested in the auction as a function of the desired payouts, the selected outcomes, and the limits on the investment amounts of each of the order and the at least one additional order in the auction; and

the step of determining the total amount invested in the auction includes determining an optimal payout and an optimal investment amount for the order.

15. The method according to claim 13, wherein the allocating step, if any state in the at least one identified state is not a state in the at least one of the plurality of states corresponding with the selected outcome, includes allocating a loss to the executed order as a function of the investment amount for the executed order.

16. The method according to claim 1, wherein the receiving step includes receiving an indication of a plurality of selected outcomes and a selection of corresponding states.

17. The method according to claim 1, wherein the event is a change in a financial product.

18. The method according to claim 1, wherein the event is a change in value of a corporate accounting measure.

20. The method of claim 1, wherein the pledged investment amount is paid prior to the occurrence of the event of economic significance.

19. A method of an investment management machine for assisting in conducting demand-based trading, comprising:

dividing a range of possible outcomes of an event of economic significance into a plurality of states, each state representing a respective subset of the range of possible outcomes, wherein a respective subset of at least one of the states includes more that one possible outcome;

storing, by a processor of the investment management machine and in a storage device of the investment management machine, the plurality of states;

receiving, by the investment management machine and via a computer network, a plurality of investment orders, each of at least a subset of the plurality of investment orders indicating a respective desired payout and a respective selected subset of the range of possible outcomes, corresponding to at least one respective one of the plurality of states, in which to invest, wherein the indicated respective selected subsets of the range of possible outcomes differ between at least some of the plurality of investment orders;

for at least one of the orders, determining, by the processor and substantially in real time, an investment amount for the order as a function of (a) the selected subset of the range of possible outcomes and the desired payout indicated by the respective order and (b) a total amount invested in the plurality of states; and

outputting the investment amount;

wherein the investment amount is pledged to be paid, such pledge occurring prior to the event of economic significance, and, for each of the at least a subset of the plurality of investment orders, the respective desired payout is payable conditional upon a prior occurrence of the respective selected subset of the range of possible outcomes.

21. A method of an investment management machine for assisting in conducting demand-based trading, comprising:

establishing a plurality of states, each state corresponding to at least one possible outcome of an event of economic significance, in which a plurality of investors invest a total amount;

storing, by a processor of the investment management machine and in a storage device of the investment management machine, the plurality of states;

receiving, from a further investor, by the investment management machine, and via a user interface, an indication of a desired payout and an indication of a selected outcome;

storing, by the processor and in the storage device, the indication of the desired payout and the indication of the selected outcome;

associating, by the processor, the selected outcome with at least one of the plurality of states;

determining, by the processor and substantially in real time, an investment amount of the one of the further investor as a function of the selected outcome, the desired payout and the total amount invested in the plurality of states by the plurality of investors; and

outputting the investment amount;

wherein the investment amount is pledged to be paid, such pledge occurring prior to the occurrence of the event of economic significance, and the desired payout is payable conditional upon and after occurrence of the event of economic significance.