Valuation of Derivative Products

Abstract

Disclosed are a method, apparatus, and computer-readable medium for determining the value of a derivative product over nonconsecutive periods. The derivative product may be an interest rate swap product, which, when exchanged traded, normally is valued on a mark-to-market basis over consecutive periods. The product may be valued using swap value factors and settlement values according to the methodology disclosed herein.

What is claimed is: 
     
         1 . An exchange computer system comprising:
 a computer device configured to transmit orders for financial instruments to a match engine over a network;   a market data module that collects market data. a processor programmed with computer-executable instructions to perform the steps comprising:
 (a) retrieving an initial trade price from the market data module; 
 (b) determining a first profit and loss value calculation as a function of an initial trade price, a first settlement value, and a first swap value factor; 
 (c) determining, by the processor, a second profit and loss value calculation as a function of a next swap value factor and a consecutive pair of settlement values; 
 (d) determining, by the processor, that an end of a desired period has been reached; 
 (e) when the end of the desired period has been reached, determining a final profit and loss value calculation and creating an aggregated value by aggregating the first profit and loss value calculation, the second profit and loss value calculation and the final profit and loss value calculation; and 
 (f) determining, by the processor, a value of a financial product based on the aggregated value. 
   
     
     
         2 . The computer system of  claim 1 , wherein the first swap value factor is a sum of coupon value factors. 
     
     
         3 . The computer system of  claim 2 , wherein each of the coupon value factors is calculated for a coupon expiration date as a product of daycount fraction and swap discount factor. 
     
     
         4 . The computer system of  claim 1 , wherein the first and second profit and loss value calculations are part of a series of calculated valuations taken from a start of a period at which the financial product is onset to an end of the period. 
     
     
         5 . The computer system of  claim 1 , further comprising adjusting the consecutive pair of settlement values prior to determining the value of the financial product. 
     
     
         6 . The computer system of  claim 1 , further comprising determining a third profit and loss value calculation from an offset trade price or from a final settlement value. 
     
     
         7 . The computer system of  claim 6 , wherein the determining of the value of the financial product is further based on the third profit and loss value calculation. 
     
     
         8 . The computer system of  claim 1 , wherein the financial product is an interest rate swap. 
     
     
         9 . The computer system of  claim 8 , wherein the interest rate swap is a dollar-denominated product or a Euro-denominated product. 
     
     
         10 . The computer system of  claim 8 , further comprising an order book module that determines current bid and offer prices. 
     
     
         11 . A system comprising:
 a computer device configured to transmit orders for financial instruments to a match engine over a network;   a market data module that collects market data. a memory unit storing computer executable instructions; and   an order processing module prhrammed with computer executable instructions to perform the steps comprising:
 (a) determining a first profit and loss value calculation as a function of an initial trade price, a first settlement value, and a first swap value factor; 
 (b) determining a second profit and loss value calculation as a function of a next swap value factor and a consecutive pair of settlement values; 
 (c) determining, by the processor, that an end of a desired period has been reached; 
 (d) when the end of the desired period has been reached, determining a final profit and loss value calculation and creating an aggregated value by aggregating the first profit and loss value calculation, the second profit and loss value calculation and the final profit and loss value calculation; and 
 (e) determining a value of a financial product based on the first and second profit and loss value calculations. 
   
     
     
         12 . The system of  claim 11 , further comprising an order book module that determines current bid and offer prices. 
     
     
         13 . The system of  claim 11 , wherein the first and second profit and loss value calculations are part of a series of calculated valuations taken from a start of a period at which the financial product is onset to an end of the period. 
     
     
         14 . The system of  claim 11 , wherein the instructions, when executed, cause the apparatus to adjust the consecutive pair of settlement values prior to determining the value of the financial product. 
     
     
         15 . The system of  claim 11 , wherein the instructions, when executed, cause the apparatus to determine a third profit and loss value calculation from an offset trade price or from a final settlement value, and wherein the determining of the value of the financial product is further based on the third profit and loss value calculation. 
     
     
         16 . A non-transitory computer readable medium storing computer executable instructions that, when executed, cause an apparatus at least to perform:
 (a) receive at a match engine and from a computer device orders for financial instruments;   (b) receive market data from a market data module that collects market data;   (c) determining a first profit and loss value calculation as a function of an initial trade price, a first settlement value, and a first swap value factor;   (d) determining a second profit and loss value calculation as a function of a next swap value factor and a consecutive pair of settlement values;   (e) determining, by the processor, that an end of a desired period has been reached;   (f) when the end of the desired period has been reached, determining a final profit and loss value calculation and creating an aggregated value by aggregating the first profit and loss value calculation, the second profit and loss value calculation and the final profit and loss value calculation; and   (g) determining a value of a financial product based on the first and second profit and loss value calculations.   
     
     
         17 . The non-transitory computer readable medium of  claim 16 , wherein the first and second profit and loss value calculations are part of a series of calculated valuations taken from a start of a period at which the financial product is onset to an end of the period. 
     
     
         18 . The non-transitory computer readable medium of  claim 16 , further comprising computer executable instructions that, when executed, cause an apparatus at least to perform adjusting the consecutive pair of settlement values prior to determining the value of the financial product. 
     
     
         19 . The non-transitory computer readable medium of  claim 16 , further comprising computer executable instructions that, when executed, cause an apparatus at least to perform determining a third profit and loss value calculation from an offset trade price or from a final settlement value. 
     
     
         20 . The computer system of  claim 6 , wherein the determining of the value of the financial product is further based on the third profit and loss value calculation.