Derivatives having demand-based, adjustable returns, and trading exchange therefor

• US 8,577,778 B2
• Filed: 04/02/2002
• Issued: 11/05/2013
• Est. Priority Date: 07/21/1999
• Status: Active Grant

• Current Assignee: Longitude LLC
• Original Assignee: Longitude LLC
• Inventors: Lange, Jeffrey, Baron, Kenneth Charles
• Primary Examiner(s): JOHNSON, GREGORY L
• Application Number:
  US10/115,505
• Publication Number:
  US 20030115128A1
• Time in Patent Office: 4,235 Days
• Field of Search: None
• US Class Current: 705/37
• CPC Class Codes: G06Q 30/08 Auctions
• 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
• 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
• CPC Class Codes: H01L 21/28061 the conductor comprising a metal or metal silicide formed by deposition, e.g. sputter deposition, i.e. without a silicidation reaction H01L21/28052 takes precedence
• CPC Class Codes: H01L 29/4941 with a barrier layer between the silicon and the metal or metal silicide upper layer, e.g. Silicide/TiN/Polysilicon

Abstract

Methods and systems for replicating derivatives strategies and for trading derivatives strategies in a demand-based trading market are described. In one embodiment, a set of contingent claims are created to replicate a derivatives strategy. One or more parameters of a contingent claim in the replication set may be determined as a function of one or more parameters of a derivatives strategy and an outcome of the event. An investment amount for a contingent claim in the replication set may be determined as a function of one or more parameters of the contingent claim and a total amount invested in a demand-based auction. In other embodiments, derivatives strategies and/or financial products are enabled to be traded in a demand-based auction and are offered to customers and/or traded in the auction. In another embodiment, a derivatives strategy is replicated by a set of one or more digitals or digital options by determining one or more parameters of the digitals or digital options in the replication set as a function of one or more parameters of the derivatives strategy.

Claims

1. A computer-implemented method for conducting a demand-based trading auction on at least one event, comprising:

determining, by a computer processor, at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of a derivatives strategy and an outcome of the event;

determining, by the processor, an investment amount for an investment in the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction; and

setting returns, by the processor, for the investment in the contingent claim by financing returns to successful investments with losses from unsuccessful investments.

2. The method according to claim 1, wherein the contingent claims in the replication set are digital options.

3. The method according to claim 1, wherein the at least one parameter of the derivatives strategy is the derivative payout function.

4. The method according to claim 3, wherein the at least one parameter of the contingent claim is a desired payout and at least one selected state, each selected state being one of a plurality of states, each state corresponding to at least one possible outcome of the event.

5. The method according to claim 4, wherein the contingent claims in the replication set are digitals.

6. The method according to claim 4, further including the step of:

establishing the plurality of states.

7. The method according to claim 6, wherein the total amount invested in the demand-based auction is a total amount invested in the plurality of states in the auction.

8. The method according to claim 6, wherein the event for the auction is one-dimensional event of economic significance.

9. The method according to claim 8, further including the step of:

selecting at least one measurable parameter of the event for the auction.

10. The method according to claim 8, wherein the event of economic significance for the auction has a plurality of dimensions.

11. The method according to claim 9, wherein the step of establishing the plurality of the states includes:

establishing the plurality of states in the auction, each state corresponding to at least one possible outcome of the at least one measurable parameter of the event.

12. The method according to claim 11, wherein the at least one measurable parameter includes a first measurable variable and a second measurable variable of the event.

13. The method according to claim 11, wherein the at least one measurable parameter is a sum of a first measured variable of the event and a second measured variable of the event.

14. The method according to claim 13, wherein the first measured variable is a number of heating degree days in a first month, and the second measured variable is a number of heating degree days in a month adjacent to the first month.

15. The method according to claim 11, wherein the at least one measurable parameter is a difference of a first measured variable of the event from a second measured variable of the event.

16. The method according to claim 15, wherein the first measured variable is a level of target federal funds at an end of a first federal reserve open market committee meeting, and the second measured variable is a level of target federal funds at an end of a subsequent federal reserve open market committee meeting.

17. The method according to claim 15, wherein the first measured variable is an interest rate on a future date for a first instrument with a first maturity term, and the second measured variable is another interest rate on the future date for a second instrument with a second maturity term, the second maturity term being different from the first maturity term.

18. The method according to claim 15, wherein the first measured variable is a yield on a Treasury security on a future date, and the second measured variable is an interest rate on a swap contract on the future date.

19. The method according to claim 11, wherein the at least one measurable parameter is a product of a first measured variable of the event and a second measured variable of the event.

20. The method according to claim 19, wherein the first measured variable is an exchange rate for a first currency, and the second measured variable is an exchange rate for a second currency.

21. The method according to claim 11, wherein the at least one measurable parameter is a quotient of a first measured variable of the event and a second measured variable of the event.

22. The method according to claim 21, wherein the first measured variable is an exchange rate for a first currency, and the second measured variable is an exchange rate for a second currency.

23. The method according to claim 21, wherein the first measured variable is earnings per share of a company, and the second measured variable is a price of an equity share in the company.

24. The method according to claim 12, wherein the step of establishing the plurality of states in the auction, each state corresponding to the at least one possible outcome of the at least one measurable parameter of the event, includes the step of:

establishing the plurality of states in the auction, each state corresponding to at least one possible outcome of each measurable parameter, the at least one possible outcome of the first measurable parameter being dependent on the at least one possible outcome of the second measurable parameter.

25. The method according to claim 12, further including the step of:

determining the at least one measurable parameter as a function of the first measurable variable.

26. The method according to claim 12, further including the step of:

determining the at least one measurable parameter as a function of the first measurable variable and the second measurable variable.

27. The method according to claim 24, wherein a first measurable parameter depends on the path of a variable of economic significance over a pre-specified time period.

28. The method according to claim 27, wherein the first measurable parameter is a minimum exchange rate of a currency over the pre-specified time period, and the second measurable parameter is a measured exchange rate at an end of the pre-specified time period.

29. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a digital option.

30. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a call option.

31. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a put option.

32. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a call spread.

33. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a put spread.

34. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a straddle.

35. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a collared straddle.

36. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a forward.

37. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a collared forward.

38. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a fixed price derivative.

39. The method according to claim 38, wherein the derivative is a digital option.

40. The method according to claim 38, wherein the derivative is a call option.

41. The method according to claim 38, wherein the derivative is a put option.

42. The method according to claim 38, wherein the derivative is a call spread.

43. The method according to claim 38, wherein the derivative is a put spread.

44. The method according to claim 1, wherein the derivatives strategy is a call option with a fixed delta.

45. The method according to claim 1, wherein the derivatives strategy is a put option with a fixed delta.

46. The method according to claim 1, wherein the derivatives strategy includes at least one of purchases and sales of a plurality of derivatives.

47. The method according to claim 46, wherein the derivatives strategy is a butterfly spread.

48. The method according to claim 1, wherein the derivatives strategy is one of a purchase and a sale of a derivative.

49. The method according to claim 1, wherein the derivatives strategy is a function of an underlying measurable event of economic significance.

50. The method according to claim 49, wherein the derivatives strategy is one of a quadratic and a higher-powered function of the underlying measurable event.

51. The method according to claim 49, wherein the derivatives strategy is an exponential function of the underlying measurable event.

52. The method according to claim 1, wherein the at least one event includes a plurality of events of economic significance.

53. The method according to claim 52, wherein the events of economic significance are unrelated to each other.

54. The method according to claim 52, wherein the events of economic significance are related to each other.

55. A computer system for conducting demand-based trading auction, comprising:

at least one processor configured to;

determine at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of the derivatives strategy and an outcome of the event;

determine an investment amount for an investment in the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction; and

set returns for the investment in the contingent claim by financing returns to successful investments with losses from unsuccessful investments.

56. The computer system according to claim 55, further comprising:

at least one database module; and

at least one terminal, the processor being operative with the at least one database module and the at least one terminal.

57. The computer system according to claim 55, wherein the at least one processor includes a first processor and a second processor parallel to the first processor.

58. The computer system according to claim 57, wherein the first processor operates with the second processor, each processor configured to at least one of:

determine at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of the derivatives strategy and an outcome of the event; and

determine an investment amount for the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction.

59. The computer system according to claim 57, wherein the first processor is configured to determine at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of the derivatives strategy and an outcome of the event, and the second processor is configured to determine an investment amount for the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction.

60. The computer system according to claim 56, further comprising:

a server housing the processor and the at least one database module; and

a network connecting the at least one database module and the processor with the at least one terminal.

61. A computer usable medium having computer readable program code embodied in the medium for use with a demand-based trading auction on an event, the computer readable program code, when executed by a computer, causing the computer to:

determine at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of the derivatives strategy and an outcome of the event;

determine an investment amount for an investment in the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction; and

set returns for the investment in the contingent claim by financing returns to successful investments with losses from unsuccessful investments.

62. A hardware-implemented method comprising transmitting machine-readable information adapted for use in the performance of a method for demand-based trading on an event, the method for demand-based trading comprising the steps of:

determining at least one parameter of a contingent claim, in a replication set of at least one contingent claim, as a function of at least one parameter of the derivatives strategy and an outcome of the event;

determining an investment amount for the contingent claim in the replication set as a function of the at least one parameter of the contingent claim and a total amount invested in the demand-based auction; and

setting returns by financing returns to successful investments with losses from unsuccessful investments.

63. The method of claim 62, wherein the information includes information relating to the at least one parameter of the derivatives strategy.

64. The method of claim 62, wherein the information includes information relating to the at least one parameter of one of the contingent claims in the replication set.

65. The method of claim 62, wherein the information includes information relating to the investment amount for one of the contingent claims in the replication set.

66. The method of claim 62, wherein the information includes information relating to an identity of a trader.

67. The method of claim 62, wherein the method includes the step of:

determining the price of the derivatives strategy as a function of the investment amounts and the at least one parameter of each contingent claim in the replication set.

68. The method of claim 67, wherein the information includes information relating to an execution of the trade for the determined price.