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System and method for creating and trading a digital derivative investment instrument

  • US 8,788,381 B2
  • Filed: 10/07/2009
  • Issued: 07/22/2014
  • Est. Priority Date: 10/08/2008
  • Status: Active Grant
First Claim
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1. A computer implemented method of creating a financial instrument with a processor of an exchange, the method comprising:

  • establishing a plurality of credit event categories with a digital derivative contract definition module in an exchange backend system;

    establishing, with a binary variable monitoring module, a digital derivative contract with a payout amount that is based on an index of a plurality of entities, wherein the digital derivative contract provides the payout amount based on;

    a first settlement plan when each one of the plurality of entities in the index is associated with a credit event in the plurality of credit event categories;

    a second settlement plan when none of the plurality of entities in the index is associated with a credit event in the plurality of credit event categories; and

    a third settlement plan when at least one, but not all, of the plurality of entities in the index is associated with a credit event in the plurality of credit event categories.

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