US2013346278A1PendingUtilityA1
Method for trading and clearing variance swaps
Est. expiryJun 6, 2031(~4.9 yrs left)· nominal 20-yr term from priority
G06Q 40/04
60
PatentIndex Score
0
Cited by
0
References
0
Claims
Abstract
In accordance with the principles of the present invention, a method for trading and clearing a volatility or variance-defined, standardized derivative financial instrument is provided. A financial instrument in either volatility or variance terms is negotiated. The realized variance to date on an underlying of that derivative financial instrument is determined. After the derivative financial instrument is negotiated and the realized variance to date is determined, at least one centrally-cleared financial instrument with a price derived from the volatility or variance terms and the realized variance to date on the underlying of that derivative financial instrument is delivered. Thus, a financial instrument negotiated in either volatility or variance terms is substituted with an equivalent position in a standardized, centrally-cleared financial instrument.
Claims
exact text as granted — not AI-modified1 - 19 . (canceled)
20 . A method for executing a standardized financial instrument comprising:
establishing a derivative financial instrument in volatility; electronically determining the realized variance to date on an underlying of that derivative financial instrument on at least one processor; and after the derivative financial instrument and the realized variance to date are established and determined, creating at least one centrally-cleared financial instrument with a price electronically derived from the volatility and the realized variance to date on the underlying of that derivative financial instrument on at least one processor; whereby a financial instrument designated in volatility can be substituted with an equivalent position in a standardized, centrally-cleared financial instrument.
21 . The method for executing a standardized financial instrument of claim 20 further including electronically establishing on at least one processor a payoff from the volatility on the underlying of the derivative financial instrument.
22 . The method for executing a standardized financial instrument of claim 21 further including utilizing at least one processor to electronically create at least one centrally-cleared financial instrument with a payoff determined from the realized variance over a predetermined time period.
23 . The method for executing a standardized financial instrument of claim 20 further including, if the time period between the trade date and the expiration date can be covered by one standardized financial instrument, creating one standardized financial instrument.
24 . The method for executing a standardized financial instrument of claim 20 further including, if the time period between the trade date and the expiration date cannot be covered by one standardized financial instrument, creating a series of standardized financial instruments that cover the time period.
25 . The method for executing a standardized financial instrument of claim 20 further including converting the volatility into variance taking into account the realized variance already accrued to date in the standardized financial instrument.
26 . The method for executing a standardized financial instrument of claim 25 further including, if there is no realized variance accrued on the date of the trade, determining the variance as the volatility squared.
27 . The method for executing a standardized financial instrument of claim 25 further including, if there is realized variance accrued on the date of the trade, establishing the variance in accordance with:
252
N
e
-
1
*
(
volatility
strike
2
*
(
N
e
-
1
-
n
)
252
+
∑
i
=
1
n
R
i
2
)
,
where
R 1 , . . . , R n are the n periods of return already realized; and
N e is the total number of business days in the accrual period of the standardized financial instrument.
28 . The method for executing a standardized financial instrument of claim 20 further including, if the trade is designated in notional Vega, converting the notional Vega into variance units in accordance with:
Dollar
Vega
2
volatilty
strike
*
100
*
N
e
-
1
N
e
-
1
-
n
,
where N e is the total number of business days in the accrual period of the standardized financial instrument, and n is the number of periods of return already realized.
29 . The method for executing a standardized financial instrument of claim 20 further including establishing final settlement price (F T ) in accordance with:
F
T
=
Realized
Variance
-
k
o
-
∑
t
=
0
T
-
1
(
F
t
-
C
)
×
R
t
×
B
t
,
T
365
+
C
where,
k o is a variance strike;
R t the Effective Federal Funds rate on day t;
B t,T , accumulation factor, equals
(
1
+
R
t
365
)
(
1
+
R
t
+
1
365
)
…
(
1
+
R
T
-
1
365
)
;
C is a predetermined constant added to the price in order to keep it in a preferred range, for example, non-negative region; and
t=0 is the first day the financial instrument has open interest.
30 . The method for executing a standardized financial instrument of claim 20 further including determining daily settlement price (F r ) in accordance with:
F t =DF ( t,T )( k−k o )− ARMVM+C,
where
DF(t,T) is the discount factor from time t to maturity T according to the appropriate discount curve;
k is the quoted variance strike to the settlement price; and
ARMVM is so-called accumulated return on modified variation margin.
31 . The method for executing a standardized financial instrument of claim 20 further including delivering a volatility-defined, standardized swap.
32 . The method for executing a standardized financial instrument of claim 20 further including delivering a volatility-defined future.
33 . A method for executing a standardized financial instrument comprising:
establishing a derivative financial instrument in variance; electronically determining the realized variance to date on an underlying of that derivative financial instrument on at least one processor; and after the derivative financial instrument and the realized variance to date are established and determined, creating at least one centrally-cleared financial instrument with a price electronically derived from the variance and the realized variance to date on the underlying of that derivative financial instrument on at least one processor; whereby a financial instrument negotiated in variance can be substituted with an equivalent position in a standardized, centrally-cleared financial instrument.
34 . The method for executing a standardized financial instrument of claim 33 further including electronically determining on at least one processor a payoff from the variance on the underlying of the derivative financial instrument.
35 . The method for executing a standardized financial instrument of claim 34 further including utilizing at least one processor to electronically deliver at least one centrally-cleared financial instrument with a payoff determined from the realized variance over a predetermined time period.
36 . The method for executing a standardized financial instrument of claim 33 further including, if the time period between the trade date and the expiration date can be covered by one standardized financial instrument, delivering one standardized financial instrument.
37 . The method for executing a standardized financial instrument of claim 33 further including, if the time period between the trade date and the expiration date cannot be covered by one standardized financial instrument, delivering a series of standardized financial instruments that cover the time period.
38 . The method for executing a standardized financial instrument of claim 33 further including, if the trade is negotiated in notional Vega, converting the notional Vega into variance units in accordance with:
Dollar
Vega
2
volatilty
strike
*
100
*
N
e
-
1
N
e
-
1
-
n
,
where N e is the total number of business days in the accrual period of the standardized financial instrument, and n is the number of periods of return already realized.
39 . The method for executing a standardized financial instrument of claim 33 further including determining final settlement price (F T ) in accordance with:
F
T
=
Realized
Variance
-
k
o
-
∑
t
=
0
T
-
1
(
F
t
-
C
)
×
R
t
×
B
t
,
T
365
+
C
where,
k o is a variance strike;
R t the Effective Federal Funds rate on day t;
B t,T , accumulation factor, equals
(
1
+
R
t
365
)
(
1
+
R
t
+
1
365
)
…
(
1
+
R
T
-
1
365
)
;
C is a predetermined constant added to the price in order to keep it in a preferred range, for example, non-negative region; and
t= 0 is the first day the financial instrument has open interest.
40 . The method for executing a standardized financial instrument of claim 33 further including determining daily settlement price (F t ) in accordance with:
F t =DF ( t,T )( k−k o )− ARMVM+C,
where
DF(t,T) is the discount factor from time t to maturity T according to the appropriate discount curve;
k is the quoted variance strike to the settlement price; and
ARMVM is so-called accumulated return on modified variation margin.
41 . The method for executing a standardized financial instrument of claim 33 further including delivering a variance-defined, standardized swap.
42 . The method for executing a standardized financial instrument of claim 33 further including delivering a variance-defined future.Join the waitlist — get patent alerts
Track US2013346278A1 — get alerts on status changes and closely related new filings.
We store only your email — no account needed. See our privacy policy.