Method and system for creating a volatility benchmark index

• US 8,694,407 B2
• Filed: 07/19/2012
• Issued: 04/08/2014
• Est. Priority Date: 11/09/2007
• Status: Active Grant

• Current Assignee: Cboe Exchange, Inc. (Cboe Global Markets, Inc.)
• Original Assignee: Chicago Board Options Exchange Incorporated (Cboe Global Markets, Inc.)
• Inventors: Shalen, Catherine T.
• Primary Examiner(s): Lemieux, Jessica
• Application Number:
  US13/553,341
• Publication Number:
  US 20130097064A1
• Time in Patent Office: 628 Days
• Field of Search: 705/36.R
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• 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 method and system for creating a volatility benchmark index is disclosed. The method includes obtaining a value of a Treasury bill account less a mark-to-market value of at least one of a volatility-based future or option and calculating a value reflecting a volatility benchmark. The value may be displayed at a trading facility and volatility benchmark quotes may be transmitted by the trading facility to a market participant.

Claims

1. A non-transitory computer-readable medium containing processor executable program instructions for creating a volatility benchmark index, the instructions configured for causing a processor to execute the steps of:

storing a value of a Treasury bill account less a mark-to-market value of at least one of a volatility-based future or option in a memory;

calculating a value reflecting a volatility benchmark on the processor based on the stored value; and

wherein the value reflecting a volatility benchmark is calculated according to the formula;

VPD_t=M_t=(1+r_t-1)VPD_t-1−

M_ultN_last(F_t−

F_t-1)

where VPD_t is a VIX premium index value at date t, M_t is a Treasury bill balance on date t, r_t-1 is an effective Treasury bill rate from date t−

1 to date t, N_last is a number of futures sold at a last roll date, F_t is a daily settlement price of futures at date t, and M_ult is a multiplier of the futures.

2. The non-transitory computer-readable medium of claim 1, wherein on a roll date the processor executable program instructions are configured to cause the processor to calculate VPD_t according to the formula:

VPD_t=(1+r_t-1)VPD_t-1−

M_ult(N_last(SOQ_t−

F_t-1)−

N_new(F_t−

F_bid))

where SOQ_t is a final settlement price of the expiring futures, N_new is the number of new futures and F_bid is an opening bid price of volatility-based futures.

3. A non-transitory computer-readable medium containing processor executable program instructions for creating a volatility benchmark index, the instructions configured for causing a processor to execute the steps of:

storing a closing value of a Treasury bill account plus a mark-to-market value of at least one of a volatility-based future or option in a memory;

calculating a value reflecting a volatility benchmark on the processor based on the stored closing value; and

wherein the value reflecting a volatility benchmark is calculated according to the formula;

VPD_t=M_t+100*10N_lastC_t

where M_t is a Treasury bill balance at a close of date t, N_last is a number of futures sold and 10 N_last is a number of volatility index (VIX) options bought at a last roll date, and C_t is an average of bid and ask quotes of VIX calls at the close on date t.

4. The non-transitory computer-readable medium of claim 3, wherein the Treasury bill balance is calculated by compounding a previous closing Treasury balance at a three-month Treasury bill rate and netting a cash flow from VIX futures.

5. A method for creating a volatility benchmark index, the method comprising:

in a trading system having a memory and a processor in communication with the memory, the processor;

storing in the memory a value of a Treasury bill account less a mark-to-market value of at least one of a volatility-based future or option in a memory;

calculating a value reflecting a volatility benchmark on the processor based on the stored value; and

wherein the value reflecting a volatility benchmark is calculated according to the formula;

VPD_t=M_t=(1+r_t-1)VPD_t-1−

M_ultN_last(F_t−

F_t-1)

where VPD_t is a VIX premium index value at date t, M_t is a Treasury bill balance on date t, r_t-1 is an effective Treasury bill rate from date t−

1 to date t, N_last is a number of futures sold at a last roll date, F_t is a daily settlement price of futures at date t, and M_ult is a multiplier of the futures.

6. The method of claim 5, further comprising, on a roll date, the processor calculating VPD_t according to the formula:

VPD_t=(1+r_t-1)VPD_t-1−

M_ult(N_last(SOQ_t−

F_t-1)−

N_new(F_t−

F_bid))

where SOQ_t is a final settlement price of the expiring futures, N_new is the number of new futures and F_bid is an opening bid price of volatility-based futures.