Methods and apparatus relating to the formulation and trading of risk management contracts

• US 6,134,536 A
• Filed: 06/06/1997
• Issued: 10/17/2000
• Est. Priority Date: 05/29/1992
• Status: Expired due to Term

• Current Assignee: Alice Corporation Pty Limited
• Original Assignee: Swychco Infrastructure Services Pty Limited
• Inventors: Shepherd, Ian Kenneth
• Primary Examiner(s): Swann, Tod R.
• Assistant Examiner(s): CAUDLE, PENNY L
• Application Number:
  US08/870,691
• Time in Patent Office: 1,229 Days
• Field of Search: 705/37, 705/1, 705/10, 705/4, 705/80
• US Class Current: 705/37
• CPC Class Codes: G06Q 10/06 Resources, workflows, human or project management; Enterprise or organisation planning; Enterprise or organisation modelling
• CPC Class Codes: G06Q 10/087 Inventory or stock management, e.g. order filling, procurement or balancing against orders
• CPC Class Codes: G06Q 30/06 Buying, selling or leasing transactions
• CPC Class Codes: G06Q 30/08 Auctions
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• 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: G06Q 40/08 Insurance
• CPC Class Codes: G06Q 50/188 Electronic negotiation

Abstract

Methods and apparatus which deal with the management of risk relating to specified, yet unknown, future events are disclosed.

`Sponsor` stakeholders specify a particular product relating to an event or phenomenon for which there is a range of possible future outcomes.

`Ordering` stakeholders then offer contracts relating to the predetermined phenomenon and corresponding range of outcomes. The offered contracts specify an entitlement or (pay-off) at the future time of maturity for each outcome, and a consideration (or premium) payable, in exchange, to a `counter-party` stakeholder.

Independently of the offered contracts, the `counter-party` stakeholders input data as to their view of the likelihood of occurrence of each outcome in the predetermined range into the future, or specifically at the predetermined date of maturity.

Each offered contract is priced by the processing units by calculating counterparty premiums from the registered data, and a match attempted by a comparison of the offered premium with the calculated premiums.

Matched contracts can be further traded until maturity, and at-maturity processing handles the exchange of entitlement as between the matched parties to the contract.

Claims

1. A data processing system to enable the formulation of multi-party risk management contracts, the system comprising:

input means by which an ordering party can input contract data representing an offered contract for a predetermined phenomenon, the phenomenon having a future range of possible outcomes at a time of maturity, and said contract data specifying the same entitlement for each said outcome due to the ordering party and a consideration due to a counterparty, and at least one counterparty can input registering data for said predetermined phenomena;

data processing means for pricing and matching contracts from said contract data and said registering data, said pricing including calculating a counter consideration from each said registering data, and said matching including comparing said consideration with each said counter consideration to match an offered contract with at least one of said counterparties; and

means for confirming a match of said offered contract to said ordering party and said at least one of said counterparties.

2. A data processing system as claimed in claim 1, wherein said registering data for each possible outcome is the counterparty assessed probability of that outcome eventuating at maturity.

3. A data processing system as claimed in claim 1, wherein the contract match is made with the counterparty having the counter consideration having the greatest difference between it and the specified consideration.

4. A data processing system as claimed in claim 1, wherein the entitlement is due at maturity.

5. A method to enable the formulation of multi-party risk management contracts, the method comprising the steps of:

(a) inputting to data processing apparatus, by input means, ordering data, contract data representing an offered contract for a predetermined phenomenon, the phenomenon having a range of possible outcomes at a time of maturity, said contract data specifying the same entitlement for each said outcome due to the ordering party and a consideration due to a counterparty;

(b) inputting to said data processing apparatus, by input means, counterparty registering data relating to the range of possible outcomes for said predetermined phenomenon;

(c) pricing and matching the offered contract, by the data processing apparatus, comprising the steps of;

(i) calculating a counter consideration from each counterparty registering data;

(ii) comparing said consideration with each said counter consideration; and

(iii) matching the contract on the basis of the comparison; and

(d) confirming a match of the contract to the ordering party and a respective counterpart.

6. A method as claimed in claim 5, comprising the further step of:

(e) payment of the consideration by the matched counterparty to the ordering party on matching of the contract.

7. A method as claimed in claim 5, comprising the further step of:

(e) payment of the entitlement by the ordering party to the counterparty on maturity of the contract.

8. A method as claimed in claim 5, whereby step (c) includes selecting the counterparty having the counter consideration having the greatest difference between it and the specified consideration.

9. A method as claimed in claim 5, where by said registering data is the assessed probability of occurrence of each possible outcome, and whereby said counter consideration is calculated by the summation over all possible outcomes of the product of the respective entitlement and the assessed probability.

10. A data processing system to enable the formulation of multi-party risk management contracts, the system comprising:

input means by which an ordering party can input contract data specifying an entitlement due to the ordering party and a consideration due to a counterparty, both the entitlement and the consideration being due on match of a contract, and at least one counterparty can input counter considerations for the contract relevant to a range of possible entitlements;

data processing means for matching a contract from said consideration and the counter consideration for the specified entitlement by comparing said consideration with each said counter consideration to match an offered contract with at least one of said counterparties; and

means for confirming a match of said offered contract to said ordering party and said at least one of said counterparties.

11. A data processing system as claimed in claim 10, wherein the contract match is made with the counterparty having the counter consideration having the greatest difference between it and the specified consideration.

12. A data processing system as claimed in claim 10, wherein the contract matures on matching.

13. A method to enable the formulation of multi-party risk management contracts, the method comprising the steps of:

(a) inputting to data processing apparatus, by input means, ordering party contract data specifying an entitlement due to the ordering party and a consideration due to a counterparty, both the entitlement and the consideration due on match of a contract;

(b) inputting to said data processing apparatus, by input means, counterparty counter considerations for the contract relevant to a range of possible entitlements;

(c) matching the offered contract, by the data processing apparatus, comprising the steps of;

(i) comparing said consideration with said counter consideration for the specified entitlement; and

(ii) matching the contract on the basis of the comparison; and

(d) confirming a match of the contract to the ordering party and a respective counterparty.

14. A method as claimed in claim 13, whereby step (c) includes selecting the counterparty having the counter consideration having the greatest difference between it and the specified consideration.

15. A method as claimed in claim 13, comprising the further step of:

(e) maturing the contract on match.

16. A data processing system to enable the management of risk by the formulation of risk management contracts, the system comprising:

data input means by which participating parties can input data concerning at least one predetermined phenomenon, each phenomenon having a range of possible outcomes and a future time of maturity,

data processing means, coupled to each input means, for pricing and matching contracts between participating parties, and wherein each contract is priced and matched on the basis of offering data specifying entitlements due at maturity for the range of possible outcomes for one or more of said phenomena, and registering data of the likelihood of each outcome in said predetermined range of outcomes at maturity for one or more of said phenomena, said offering data and said pricing data being derived from said participating party data; and

means for confirming a match of a contract to respective participating parties.

17. A data processing system as claimed in claim 16, wherein said participating party data includes an attitude and/or objective to said one or more phenomena.

18. A data processing system as claimed in claim 16, wherein said participating party data further includes offering data and/or pricing data.

19. A method for enabling the management of risk by the formulation of risk management contracts, the method comprising the steps of:

(a) participating parties inputting, by at least one data input means, data concerning at least one predetermined phenomenon, each said phenomenon having a range of future outcomes and a future time of maturity;

(b) pricing and matching contracts between participating parties, by data processing means, whereby each contract is priced and matched on the basis of offering data specifying entitlements due at maturity for the range of possible outcomes for one or more of said phenomena, and registering data of the likelihood of each outcome in said predetermined range of outcomes at maturity for one or more of said phenomena, said offering data and said pricing data being derived from said participating party data; and

(c) confirming a match of a contract to respective participating parties.

20. A method as claimed in claim 19, whereby said participating party data includes an attitude and/or objective to said one or more phenomena.

21. A method as claimed in claim 19, whereby said participating party data further includes offering data and/or pricing data.

22. A data processing system to enable the formulation of multi-party risk management contracts, the system comprising:

input means by which an ordering party can input contract data representing an offered contract for a predetermined phenomenon, the phenomenon having a future range of possible outcomes at a time of maturity, and said contract data specifying the same entitlement for each said outcome due to the ordering party, and at last one counterparty can input registering data for said predetermined phenomena;

data processing means for pricing and matching contracts from said contract data and said registering data, said pricing including calculating a consideration due to the counterparty from each said registering data, and said matching including comparing said considerations to match an offered contract with at least one of said counterparties; and

means for confirming a match of a contract to said ordering party and said at least one of said counterparties.

23. A data processing system as claimed in claim 22, wherein only those counterparty considerations that satisfy a threshold consideration specified by the ordering party are compared.

24. A method to enable the formulation of multi-party risk management contracts, the method comprising the steps of:

(a) inputting to data processing apparatus, by input means, ordering data, contract data representing an offered contract for a predetermined phenomenon, the phenomenon having a range of possible outcomes at a time of maturity, said contract data specifying the same entitlement for each said outcome due to the ordering party;

(b) inputting to said data processing apparatus, by input means, counterparty registering data relating to the range of possible outcomes for said predetermined phenomenon;

(c) pricing and matching the offered contract, by the data processing apparatus, comprising the steps of;

(i) calculating a consideration due to each counterparty from each counterparty registering data;

(ii) comparing said calculated considerations; and

(iii) matching the contract on the basis of the comparison; and

(d) confirming a match of the contract to the ordering party and a respective counterparty.

25. A method as claimed in claim 24, whereby step (c)(ii) includes accepting only those counterparty considerations that satisfy a threshold consideration specified by the ordering party.