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Method of creating and trading derivative investment products based on a statistical property reflecting the variance of an underlying asset

  • US 8,326,715 B2
  • Filed: 05/04/2005
  • Issued: 12/04/2012
  • Est. Priority Date: 05/04/2005
  • Status: Active Grant
First Claim
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1. A computer-implemented method of calculating and disseminating a value of an underlying asset associated with at least one variance derivative, the method comprising:

  • calculating, with a processor, a value for a statistical property reflecting the variance of the underlying asset on a processor, the value for the statistical property having a value which reflects an average volatility of price returns of the underlying asset over a predefined time period, wherein calculating the value for the statistical property reflecting the variance of the underlying asset comprises calculating an average of a summation of each squared daily return of the underlying asset;

    displaying, with the processor, at least one variance derivative based on the statistical property reflecting variance on a trading facility display device coupled to a trading platform;

    transmitting, with the processor, at least one variance derivative quote of a liquidity provider from the trading facility to at least one market participant; and

    settling, with the processor, the at least one variance derivative based on a difference between a first cumulative realized variance and a strike price set at a fixed second cumulative realized variance, wherein the strike price is set at the fixed second cumulative realized variance when the variance derivative is created;

    wherein calculating the value for the statistical property reflecting the variance of the underlying asset comprises;

    calculating the value of the statistical property according to the formula;

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