System and Method for Emulating a Long/Short Hedge Fund Index in a Trading System

Abstract

A system comprises a memory operable to store a compound index that is based at least in part on a plurality of component indices. The plurality of component indices comprise an international developed markets equity index, a U.S. large-cap equity index, and a U.S. small-cap equity index. The compound index is further based at least in part on a plurality of weights, wherein each weight is associated with a respective one of the plurality of component indices. The system further comprises a processor communicatively coupled to the memory and operable to update the plurality of weights according to a regression analysis. The regression analysis is based at least in part on a respective set of returns associated with each of the plurality of component indices and with a hedge fund index. The plurality of weights are updated such that the compound index emulates the hedge fund index. The processor is further operable to determine a current compound index value based at least in part on the plurality of component indices and on the updated plurality of weights. The processor is further operable to transmit the current compound index value to one or more clients.

1 . A system, comprising:
 a computer memory configured to store a compound index that is based at least in part on:
 a plurality of component indices, wherein the plurality of component indices comprise:
 an international developed markets equity index; 
 a United States large-cap equity index; and 
 a United States small-cap equity index; 
 
 and 
 a plurality of weights, wherein each weight is associated with a respective one of the plurality of component indices; 
   and   a computer processor communicatively coupled to the memory and operable to:
 update the plurality of weights according to a regression analysis, wherein:
 the regression analysis is based at least in part on a respective set of returns associated with each of the plurality of component indices and with a hedge fund index; and 
 the plurality of weights are updated such that the compound index emulates the hedge fund index; and 
 
 determine a current compound index value based at least in part on the plurality of component indices and on the updated plurality of weights. 
   
     
     
         2 . The system of  claim 1 , wherein:
 the computer processor is further operable to allocate a plurality of investment instruments of a fund;   the fund comprises:
 a first set of investment instruments associated with the international developed markets equity index; 
 a second set of investment instruments associated with the United States large-cap equity index; and 
 a third set of investment instruments associated with the United States small-cap equity index; 
   and   the plurality of investment instruments are allocated according to the updated weights.   
     
     
         3 . The system of  claim 2 , wherein allocating the plurality of investment instruments comprises generating one or more trading orders associated with at least one of the plurality of investment instruments. 
     
     
         4 . The system of  claim 1 , wherein the hedge fund index is an equity hedge index. 
     
     
         5 . The system of  claim 1 , wherein:
 the hedge fund index is associated with a long/short investment strategy;   the international developed markets equity index is a United States dollar net total return index;   the United States large-cap equity index is a 500 total return index; and   the United States small-cap equity index is a 2000 total return index.   
     
     
         6 . The system of  claim 1 , wherein:
 the hedge fund index is based at least in part on a plurality of hedge funds; and   each of the plurality of hedge funds comprises long equities that are hedged with short sales of at least one of the following:
 equities; and 
 equity options. 
   
     
     
         7 . The system of  claim 1 , wherein the updating of the plurality of weights is based at least in part on an interest rate. 
     
     
         8 . The system of  claim 1 , wherein the respective set of returns associated with a particular component index comprises a plurality of monthly returns associated with the particular component index; and
 each monthly return is associated with a respective month from a sampling period that spans at least twelve months.   
     
     
         9 . The system of  claim 1 , wherein:
 each set of returns is updated on a monthly basis; and   the plurality of weights are updated on a monthly basis.   
     
     
         10 . A method, comprising:
 storing a computer memory a value of a compound index that is based at least in part on:
 a plurality of component indices, wherein the plurality of component indices comprise:
 an international developed markets equity index; 
 a United States large-cap equity index; and 
 a United States small-cap equity index; 
 
 and 
 a plurality of weights, wherein each weight is associated with a respective one of the plurality of component indices; 
   updating, using a computer processor, the plurality of weights according to a regression analysis, wherein:
 the regression analysis is based at least in part on a respective set of returns associated with each of the plurality of component indices and with a hedge fund index; 
 the hedge fund index is based at least in part on a plurality of hedge funds; and 
 the plurality of weights are updated such that the compound index emulates the hedge fund index; 
   and   determining, using the computer processor, a current compound index value based at least in part on the plurality of component indices and on the updated plurality of weights.   
     
     
         11 . The method of  claim 10 , further comprising:
 allocating a plurality of investment instruments of a fund, wherein:   the fund comprises:
 a first set of investment instruments associated with the international developed markets equity index; 
 a second set of investment instruments associated with the United States large-cap equity index; and 
 a third set of investment instruments associated with the United States small-cap equity index; 
   and   the plurality of investment instruments are allocated according to the updated weights.   
     
     
         12 . The method of  claim 11 , wherein allocating the plurality of investment instruments comprises generating one or more trading orders associated with at least one of the plurality of investment instruments. 
     
     
         13 . The method of  claim 10 , wherein the hedge fund index is an equity hedge index. 
     
     
         14 . The method of  claim 10 , wherein:
 the hedge fund index is associated with a long/short investment strategy;   the international developed markets equity index is a United States dollar net total return index;   the United States large-cap equity index is a 500 total return index; and   the United States small-cap equity index is a 2000 total return index.   
     
     
         15 . The method of  claim 10 , wherein:
 the hedge fund index is based at least in part on a plurality of hedge funds; and   each of the plurality of hedge funds comprises long equities that are hedged with short sales of at least one of the following:
 equities; and 
 equity options. 
   
     
     
         16 . The method of  claim 10 , wherein the updating of the plurality of weights is based at least in part on an interest rate. 
     
     
         17 . The method of  claim 10 , wherein the respective set of returns associated with a particular component index comprises a plurality of monthly returns associated with the particular component index; and
 each monthly return is associated with a respective month from a sampling period that spans at least twelve months.   
     
     
         18 . The method of  claim 10 , wherein:
 each set of returns is updated on a monthly basis; and   the plurality of weights are updated on a monthly basis.   
     
     
         19 . A computer readable medium tangibly embodied with executable code for updating a compound index, the code operable when executed by a computer processor to:
 store a compound index that is based at least in part on:
 a plurality of component indices, wherein the plurality of component indices comprise:
 an international developed markets equity index; 
 a United States large-cap equity index; and 
 a United States small-cap equity index; 
 
 and 
 a plurality of weights, wherein each weight is associated with a respective one of the plurality of component indices; 
   update the plurality of weights according to a regression analysis, wherein:
 the regression analysis is based at least in part on a respective set of returns associated with each of the plurality of component indices and with a hedge fund index; and 
 the plurality of weights are updated such that the compound index emulates the hedge fund index; 
   and   determine a current compound index value based at least in part on the plurality of component indices and on the updated plurality of weights.   
     
     
         20 . The logic of  claim 19 , wherein:
 the respective set of returns associated with a particular component index comprises a plurality of monthly returns associated with the particular component index; and   each monthly return is associated with a respective month from a sampling period that spans at least twelve months.