US 2011/0035313 A1 · American and European style Win, Lose or Draw derivative instruments

Abstract

Methods and systems are disclosed for listing and trading fixed-payoff derivative contracts between two parties based on the movement of an underlying financial instrument in a manner that eliminates the cost associated with a traditional option premium. The invention, henceforth referred to as a “Win, Lose or Draw” derivative contract, is a cash position for or against the occurrence of a designated price event above an underlying financial instrument's spot price before the occurrence of a designated price event below an underlying financial instrument's spot price, or vice versa, within a designated time period. If neither designated price event occurs within the designated time period, no loss of cash position is incurred by either party. Embodiments of the invention include both American-style and European-style contracts, the application of asset-backed contracts, transferable positions, multiple underlying financial instruments within the same contract, asymmetric time periods, and expirationless time periods.

Claims24

Dependent claims

A computer-implemented method of defining and listing a derivative product for trading on an exchange or over-the-counter trading platform, comprising:

a) designating, by means of a programmed computer, a first price event above a reference price for a given underlying financial instrument;
b) designating, by means of a programmed computer, a second price event below the reference price for the given underlying financial instrument;
c) designating, by means of a programmed computer, a common time frame for either designated price event to occur;
and
d) designating, by means of a programmed computer, predetermined payoffs, wherein:
i) a first predetermined payoff is based at least in part on the occurrence of the first designated price event at the expiration of the designated time frame versus the occurrence of the second designated price event at the expiration of the designated time frame;
and
ii) a second predetermined payoff is based at least in part on the occurrence of the second designated price event at the expiration of the designated time frame versus the occurrence of the first designated price event at the expiration of the designated time frame.

5 more elements

A computer-implemented method of executing a derivative contract between two parties, comprising:

a) receiving and processing, by means of a programmed computer, a first order on behalf of a first party for a first cash or asset-backed position, the first position comprising parameters including at least a first predetermined payoff based at least in part on the occurrence of a first designated price event above a reference price for a given underlying financial instrument at the expiration of a predetermined time frame versus the occurrence of a second designated price event below the reference price for the given underlying financial instrument at the expiration of the predetermined time frame;
b) receiving and processing, by means of a programmed computer, a second order on behalf of a second party for a second cash or asset-backed position, the second position comprising parameters including at least a second predetermined payoff based at least in part on the occurrence of the second designated price event below the reference price for the given underlying financial instrument at the expiration of the predetermined time frame versus the occurrence of the first designated price event above the reference price for the given underlying financial instrument at the expiration of the predetermined time frame;
c) matching and processing, by means of a programmed computer, the first and second orders into a contract between the two parties;
and
d) determining the outcome and settling the contract between the two respective parties, by means of a programmed computer, wherein:
i) the contract is settled in the first party's favor by means of at least the first predetermined payoff if the first designated price event occurs at the expiration of the predetermined time frame;
ii) the contract is settled in the second party's favor by means of at least the second predetermined payoff if the second designated price event occurs at the expiration of the predetermined time frame;
and
iii) the contract is settled in neither party's favor if neither designated price event occurs at the expiration of the predetermined time frame.

6 more elements

A programmed computer system for executing a derivative contract between two parties, comprising:

a) A computer processor operative to execute instructions from a computer program product embodied in a computer-readable medium to receive and process a first order on behalf of a first party for a first cash or asset-backed position, the first position comprising parameters including at least a first predetermined payoff based at least in part on the occurrence of a first designated price event above a reference price for a given underlying financial instrument at the expiration of a predetermined time frame versus the occurrence of a second designated price event below the reference price for the given underlying financial instrument at the expiration of the predetermined time frame;
b) A computer processor operative to execute instructions from a computer program product embodied in a computer-readable medium to receive and process a second order on behalf of a second party for a second cash or asset-backed position, the second position comprising parameters including at least a second predetermined payoff based at least in part on the occurrence of the second designated price event below the reference price for the given underlying financial instrument at the expiration of the predetermined time frame versus the occurrence of the first designated price event above the reference price for the given underlying financial instrument at the expiration of the predetermined time frame;
c) A computer processor operative to execute instructions from a computer program product embodied in a computer-readable medium to match and process the first and second orders into a contract between the two parties;
and
d) A computer processor operative to execute instructions from a computer program product embodied in a computer-readable medium to determine the outcome and settle the contract between the two parties, wherein:
i) the contract is settled in the first party's favor by means of at least the first predetermined payoff if the first designated price event occurs at the expiration of the predetermined time frame;
ii) the contract is settled in the second party's favor by means of at least the second predetermined payoff if the second designated price event occurs at the expiration of the predetermined time frame;
and
iii) the contract is settled in neither party's favor if neither designated price event occurs at the expiration of the predetermined time frame.

6 more elements

Dependencies are inferred from the claim text.

American and European style Win, Lose or Draw derivative instruments

Life of this patent

American and European style Win, Lose or Draw derivative instruments

Life of this patent

Abstract

Claims24