Synthetic ultralong inflation-protected separate trading of registered interest and principal of securities system, method and computer program product

• US 8,560,414 B2
• Filed: 08/16/2010
• Issued: 10/15/2013
• 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): Tran, Hai
• Application Number:
  US12/857,479
• Publication Number:
  US 20100312719A1
• Time in Patent Office: 1,156 Days
• Field of Search: 705/35, 705/36.R, 705/37
• US Class Current: 705/35
• 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/or leverage funds; monitoring market information about a bond market and/or inflation using a computer; and recalibrating the correlated investment using the computer according to the market information and/or inflation, including: recommending at least one of buying or selling portions of the correlated investment securities and/or portfolio as indicated by the market and/or inflation information. The future liabilities may be of a duration greater than the duration of the longest available bond issued by an applicable sovereign.

Claims

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

maintaining, by at least one computer, the long duration defeasement portfolio comprising;

aligning, by the at least one computer, a net asset value of the long duration defeasement portfolio with a present value of a long duration liability comprising;

matching a synthetic duration of said long duration defeasement portfolio to a liability duration of a long duration liability, wherein said liability duration of said long duration liability is greater than a duration of a longest available bond issued by an applicable sovereign; and

changing, by the at least one computer, said long duration defeasement portfolio in a highly correlated manner when the present value of said long duration liability changes; 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 the duration of said long duration liability.

2. The method according to claim 1, wherein said changing comprises:

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

adjusting, by the at least one computer, said long duration defeasement portfolio based on said market information and said determination whether to adjust.

3. The method according to claim 1, wherein said long duration liability comprises a stream of one or more future liabilities.

4. The method according to claim 1, wherein said aligning comprises:

discounting, by the at least one computer, a future value of said long duration liability to a present value using a discount rate.

5. The method according to claim 4, wherein said discounting by said discount rate comprises discounting, by the at least one computer, by a rate equal to a yield of a zero-coupon Treasury bond, said zero-coupon Treasury bond maturing at a time substantially near a maturity of said long duration liability.

11. The method according to claim 1, wherein said portfolio comprises a synthetic security.

12. The method according to claim 1, wherein said portfolio comprises an inflation-adjusted security.

13. The method according to claim 1, wherein said portfolio comprises a synthetic ultralong inflation-protected separate trading of interest and principal security of duration that exceeds a longest available inflation-protected security available from an applicable sovereign.

14. The method according to claim 1, wherein said aligning comprises at least one of:

changing said long duration defeasement portfolio by at least one of;

using leverage to purchase or sell at least one security in the long duration defeasement portfolio;

purchasing or selling zero coupon bonds;

or

hedging interest rate risk for the long duration liability.

6. A computer implemented method of maintaining a long duration defeasement portfolio for a long duration liability of a duration greater than a duration of a longest conventional bond, comprising:

determining, by at least one processor, a liability duration of at least one long duration liability, wherein the liability duration is greater than a duration of the longest available bond issued by an applicable sovereign; and

selecting, by the at least one processor, at least one investment to include in the long duration defeasement portfolio, the investment comprising at least one of an interest bearing security, or a derivative, said investment having a duration less than the liability duration of the long duration liability, but being purchased in a sufficient multiple so that the multiplicative product of said duration of said investment and said multiple, equals said liability duration of said long duration liability;

maintaining, by at least one computer, the long duration defeasement portfolio comprising;

aligning, by the at least one computer, a net asset value of the long duration defeasement portfolio with a present value of a long duration liability comprising;

matching, by the at least one computer, a synthetic duration of said long duration defeasement portfolio to a liability duration of a long duration liability, wherein said liability duration of said long duration liability is greater than a duration of a longest available bond issued by an applicable sovereign; and

changing, by the at least one computer, said long duration defeasement portfolio in a highly correlated manner when the present value of said long duration liability changes; and

tracking, by the at least one processor, effective yields generated from the 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.

7. The method according to claim 6, wherein said liability duration of said long duration liability exceeds the longest available separate trading of registered interest and principal of securities bond issued by an applicable sovereign.

8. The method according to claim 7, 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.

15. The method according to claim 6, wherein said aligning comprises at least one of:

changing said long duration defeasement portfolio by at least one of;

using leverage to purchase or sell at least one security in the long duration defeasement portfolio;

purchasing or selling zero coupon bonds;

or

hedging interest rate risk for the long duration liability.

9. A computer implemented method of maintaining a long duration defeasement portfolio comprising:

maintaining, by at least one processor, the long duration defeasement portfolio comprising;

matching, by the at least one computer, a synthetic duration of the long duration defeasement portfolio to a liability duration of at least one long duration liability;

comprising;

changing, by the at least one computer, the long duration defeasement portfolio, in a highly correlated manner, when a present value of said at least one long duration liability changes, aligning, by the at least one computer, a net asset value of the long duration defeasement portfolio with the present value of the long duration liability, wherein the long duration defeasement portfolio comprises at least one of bonds or derivatives having the same duration as said liability duration, wherein said liability duration is longer than the longest available separate trading of registered interest and principal of securities (STRIPs) bond, available from an applicable sovereign; and

tracking, by the at least one computer, effective yields generated from the 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.

16. The method according to claim 9, wherein said aligning comprises at least one of:

changing said long duration defeasement portfolio by at least one of;

using leverage to purchase or sell at least one security in the long duration defeasement portfolio;

purchasing or selling zero coupon bonds;

or

hedging interest rate risk for the long duration liability.

10. A computer implemented method of maintaining a long duration defeasement portfolio comprising:

defeasing, by at least one computer, at least one long duration liability using at least one fixed income instrument in a long duration defeasement portfolio whose duration matches a liability duration of the at least one long duration liability, wherein said duration of said at least one fixed income instrument in said long duration defeasement portfolio exceeds a duration of the longest duration available separate trading of registered interest and principal of securities bond, available from an applicable sovereign, wherein said defeasing comprises;

aligning, by the at least one computer, a net asset value of the long duration defeasement portfolio with a present value of the at least one long duration liability;

wherein said aligning comprises;

matching, by the at least one computer, a synthetic duration of said long duration defeasement portfolio to a liability duration of a long duration liability, wherein said liability duration of said long duration liability is greater than a duration of a longest available bond issued by an applicable sovereign; and

changing, by the at least one computer, said long duration defeasement portfolio in a highly correlated manner when the present value of said long duration liability changes; and

tracking, by the at least one computer, effective yields generated from the at least one fixed income instrument of 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 method according to claim 10, wherein said aligning comprises at least one of:

changing said long duration defeasement portfolio by at least one of;

using leverage to purchase or sell at least one security in the long duration defeasement portfolio;

purchasing or selling zero coupon bonds;

or

hedging interest rate risk for the long duration liability.