Derivative Products

Abstract

Systems and methods are described for processing and clearing derivatives products with a binary outcome and having a final settlement based on a triggering event. 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., the credit rating of a reference entity. As a result of price adjustments, cash flow may be generated between buyers and sellers. The derivative product may pay a predetermined final settlement amount or percentage upon the triggering of a predetermined event. However, upon expiration of the derivative product, the derivative's market price is settled to zero and the agreement is terminated.

1 . A method comprising:
 (a) transferring cash flow to a buyer from a seller of a derivative calling for payment to the buyer by the seller in response to occurrence of a triggering event, wherein the transfer is performed by a computer system based on a change in a market value of the derivative;   (b) repeating (a) multiple additional times, wherein the cash flow at each repetition is based on a different market value of the derivative;   (c) determining, by the computer system, that the triggering event has occurred; and   (d) applying a final settlement price of the derivative product based on the occurrence of the triggering event, wherein the final settlement price is reduced by an initial fee for the derivative product and by the cash flows transferred in (a) and (b).   
     
     
         2 . The method of  claim 1 , wherein the triggering event is a credit event. 
     
     
         3 . The method of  claim 2 , wherein the credit event is based on at least one of the following: bankruptcy, obligation acceleration, obligation default, failure to pay, debt repudiation, moratorium, and restructuring. 
     
     
         4 . The method of  claim 1 , wherein the triggering event is based on at least one of the following: economic factor, agricultural factor, financial instruments, security, commodity, housing index, and real estate index. 
     
     
         5 . The method of  claim 1 , wherein the derivative product is an agreement for a credit default swap. 
     
     
         6 . The method of  claim 5 , wherein the credit default swap is based on a single entity. 
     
     
         7 . A computer system comprising:
 a processing unit; and   a memory unit storing computer-executable instructions that, when executed by the processing unit, cause the computer system to perform operations comprising
 (a) transferring cash flow to a buyer from a seller of a derivative calling for payment to the buyer by the seller in response to occurrence of a triggering event, wherein the transfer is performed based on a change in a market value of the derivative, 
 (b) repeating (a) multiple additional times, wherein the cash flow at each repetition is based on a different market value of the derivative, 
 (c) determining that the triggering event has occurred, and 
 (d) applying a final settlement price of the derivative product based on the occurrence of the triggering event, wherein the final settlement price is reduced by an initial fee for the derivative product and by the cash flows transferred in (a) and (b). 
   
     
     
         8 . The computer system of  claim 7 , wherein the triggering event is a credit event. 
     
     
         9 . The computer system of  claim 8 , wherein the credit event is based on at least one of the following: bankruptcy, obligation acceleration, obligation default, failure to pay, debt repudiation, moratorium, and restructuring. 
     
     
         10 . The computer system of  claim 7 , wherein the triggering event is based on at least one of the following: economic factor, agricultural factor, financial instruments, security, commodity, housing index, and real estate index. 
     
     
         11 . The computer system of  claim 7 , wherein the derivative product is an agreement for a credit default swap. 
     
     
         12 . The computer system of  claim 11 , wherein the credit default swap is based on a single entity. 
     
     
         13 . A non-transitory computer-readable medium storing computer-executable instructions which are configured to cause a computer system executing the computer-executable instructions to perform a method comprising:
 (a) transferring cash flow to a buyer from a seller of a derivative calling for payment to the buyer by the seller in response to occurrence of a triggering event, wherein the transfer is performed based on a change in a market value of the derivative;   (b) repeating (a) multiple additional times, wherein the cash flow at each repetition is based on a different market value of the derivative;   (c) determining that the triggering event has occurred; and   (d) applying a final settlement price of the derivative product based on the occurrence of the triggering event, wherein the final settlement price is reduced by an initial fee for the derivative product and by the cash flows transferred in (a) and (b).   
     
     
         14 . The non-transitory computer-readable medium of  claim 13 , wherein the triggering event is a credit event. 
     
     
         15 . The non-transitory computer-readable medium of  claim 14 , wherein the credit event is based on at least one of the following: bankruptcy, obligation acceleration, obligation default, failure to pay, debt repudiation, moratorium, and restructuring. 
     
     
         16 . The non-transitory computer-readable medium of  claim 13 , wherein the triggering event is based on at least one of the following: economic factor, agricultural factor, financial instruments, security, commodity, housing index, and real estate index. 
     
     
         17 . The non-transitory computer-readable medium of  claim 13 , wherein the derivative product is an agreement for a credit default swap. 
     
     
         18 . The non-transitory computer-readable medium of  claim 17 , wherein the credit default swap is based on a single entity.