Derivative Products

Abstract

Methods, systems and apparatuses are described for processing and clearing derivatives products with a digital outcome and a plurality of constituents. A computer system configured to process and clear derivative products can accept initial and adjusted performance bonds from buyers and sellers, and adjust the market price of the derivative product at intervals. The market price may be adjusted on a mark-to-market basis and through analysis of other information, e.g., a change in credit rating of reference entities of the derivative product. As a result of price adjustments, cash flow may be generated between buyers and sellers (e.g., credit and debit to accounts). The derivative product may pay a percentage of a predetermined final settlement amount upon the triggering of a predetermined event in each of the constituents of the derivative product. However, upon expiration of the derivative product, the derivative's market price is settled to zero and the agreement is terminated.

1 . An apparatus, comprising:
 a processing unit; and   a memory unit storing computer-executable instructions, which when executed by the processing unit, cause the apparatus to perform a method comprising:
 calculating cash flows between a buyer and a seller of a derivative product for each of multiple intervals, wherein the derivative product has an outcome based on the occurrence or non-occurrence of a triggering event for each of multiple constituents of the derivative product, wherein a cash flow is calculated for each of the intervals based on an original price for the derivative product as marked to market, and wherein the original price as marked to market for each of the intervals reflects occurrence or non-occurrence of triggering events for the multiple constituents, and 
 determining a final settlement price for the derivative product, wherein the final settlement price is based at least in part on the calculated cash flows. 
   
     
     
         2 . The apparatus of  claim 1 , wherein
 calculating cash flows comprises calculating cash flows for first, second and third intervals,   the cash flows for each of the first, second and third intervals is different,   determining the final settlement price comprises treating the cash flows for the first, second and third intervals payments of parts of the original price.   
     
     
         3 . The apparatus of  claim 1 , wherein each of the triggering events is a credit event. 
     
     
         4 . The apparatus of  claim 1 , wherein the triggering event for each of the constituents is a credit event based on at least one of the following: bankruptcy, obligation acceleration, obligation default, failure to pay, debt repudiation, moratorium, and restructuring. 
     
     
         5 . The apparatus of  claim 1 , wherein the derivative product is a credit default swap. 
     
     
         6 . A non-transitory computer-readable medium storing computer-executable instructions configured to cause a computer executing the computer-executable instructions to perform a method comprising:
 calculating cash flows between a buyer and a seller of a derivative product for each of multiple intervals, wherein the derivative product has an outcome based on the occurrence or non-occurrence of a triggering event for each of multiple constituents of the derivative product, wherein a cash flow is calculated for each of the intervals based on an original price for the derivative product as marked to market, and wherein the original price as marked to market for each of the intervals reflects occurrence or non-occurrence of triggering events for the multiple constituents; and   determining a final settlement price for the derivative product, wherein the final settlement price is based at least in part on the calculated cash flows.   
     
     
         7 . The non-transitory computer-readable medium of  claim 6 , wherein
 calculating cash flows comprises calculating cash flows for first, second and third intervals,   the cash flows for each of the first, second and third intervals is different,   determining the final settlement price comprises treating the cash flows for the first, second and third intervals payments of parts of the original price.   
     
     
         8 . The non-transitory computer-readable medium of  claim 6 , wherein each of the triggering events is a credit event. 
     
     
         9 . The non-transitory computer-readable medium of  claim 6 , wherein the triggering event for each of the constituents is a credit event based on at least one of the following: bankruptcy, obligation acceleration, obligation default, failure to pay, debt repudiation, moratorium, and restructuring. 
     
     
         10 . The non-transitory computer-readable medium of  claim 6 , wherein the derivative product is a credit default swap. 
     
     
         11 . A method comprising:
 calculating, by a computer system, cash flows between a buyer and a seller of a derivative product for each of multiple intervals, wherein the derivative product has an outcome based on the occurrence or non-occurrence of a triggering event for each of multiple constituents of the derivative product, wherein a cash flow is calculated for each of the intervals based on an original price for the derivative product as marked to market, and wherein the original price as marked to market for each of the intervals reflects occurrence or non-occurrence of triggering events for the multiple constituents; and   determining, by the computer system, a final settlement price for the derivative product, wherein the final settlement price is based at least in part on the calculated cash flows.   
     
     
         12 . The method of  claim 11 , wherein
 calculating cash flows comprises calculating cash flows for first, second and third intervals,   the cash flows for each of the first, second and third intervals is different,   determining the final settlement price comprises treating the cash flows for the first, second and third intervals payments of parts of the original price.   
     
     
         13 . The method of  claim 11 , wherein each of the triggering events is a credit event. 
     
     
         14 . The method of  claim 11 , wherein the triggering event for each of the constituents is a credit event based on at least one of the following: bankruptcy, obligation acceleration, obligation default, failure to pay, debt repudiation, moratorium, and restructuring. 
     
     
         15 . The method of  claim 11 , wherein the derivative product is a credit default swap.