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System and method for creating and trading a derivative investment instrument over a range of index values

  • US 8,165,953 B2
  • Filed: 09/04/2007
  • Issued: 04/24/2012
  • Est. Priority Date: 09/04/2007
  • Status: Active Grant
First Claim
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1. An exchange system configured for trading a derivative investment instrument, the exchange system comprising:

  • an interface for receiving an incoming order to purchase the derivative investment instrument, the derivative investment instrument having a range length associated therewith, wherein the range length comprises a first range interval defining a low range for the derivative investment instrument, the low range associated with a payout amount that increases as the index value increases within the first range interval, a second range interval defining a high range for the derivative investment instrument, the high range associated with a payout amount that decreases as the index value increases in the second range interval, and a third range interval defining a middle range, the middle range having a fixed payout amount;

    a book memory for storing a plurality of previously received orders, the plurality of previously received orders each having the range length associated therewith;

    a system memory for storing predefined condition parameters for a plurality of predefined range intervals corresponding to a plurality of potential outcomes for the derivative investment instrument; and

    a processor adapted to associate the plurality of previously received orders in the book memory with at least one of the predefined condition parameters, wherein the predefined condition parameters include at least one parameter for identifying an occurrence of at least one index value falling within one of the predefined range intervals occurring before an expiration of the derivative investment instrument; and

    the processor further adapted to calculate a zero payout value for orders having at least one index value that did not fall within the range length before the expiration of the derivative investment instrument and a greater than the zero payout value for orders having at least one index value that did fall within the range length prior to or at the expiration of the derivative investment instrument.

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