Method of Creating and Trading Derivative Investment Products Based on a Statistical Property Reflecting the Variance of an Underlying Asset

A system for calculating and disseminating a value associated with an underlying asset that is associated with a variance derivative, the system comprising:

• a variance property module comprising a first processor, a first memory coupled with the first processor, and a first communications interface coupled with a communications network, the first processor, and the first memory;
• a dissemination module coupled with the variance property module, the dissemination module comprising a second processor, a second memory coupled with the second processor, and a second communications interface coupled with the communications network, the second processor, and the second memory;
• a first set of logic, stored in the first memory and executable by the first processor to:
• receive current values for an underlying asset of a variance derivative through the first communications interface;
• calculate a realized variance, cumulative realized variance, and implied realized variance for the underlying asset;
• and
• pass values for the calculated realized variance, cumulative realized variance, and implied realized variance to the dissemination module;
• and
• a second set of logic, stored in the second memory and executable by the second processor to:
• receive the calculated realized variance, cumulative realized variance, and implied realized variance values for the underlying asset from the variance property module;
• and
• disseminate the calculated values through the second communications interface to at least one market participant;
• wherein the variance derivative is settled based on a difference between the cumulative realized variance and a strike price set at a fixed second cumulative realized variance, wherein the strike price is set at the fixed second cumulative realized variance when the variance derivative is created.

A computer-implemented method of creating a variance derivative, the method comprising:

• with a processor in a trading platform:
• calculating a value for a statistical property reflecting a variance of an underlying asset, the value for the statistical property having a value which reflects an average volatility of price returns of the underlying asset over a predefined time period;
• creating the variance derivative associated the underlying asset based on the statistical property reflecting a variance of an underlying asset, wherein the variance derivative is settled based on a difference between a cumulative realized variance and a strike price set at a fixed second cumulative realized variance, wherein the strike price is set at the fixed second cumulative realized variance when the variance derivative is created;
• and
• displaying the statistical property having a value which reflects an average volatility of price returns of the underlying asset over a predefined time period on a trading platform display device coupled with the trading platform.

A trading system comprising:

• a display device;
• a memory device storing a set of instructions;
• and
• a processor in communication with the display device and the memory device, the processor configured to execute the set of instructions stored in the memory and to:
• calculate a value for a statistical property reflecting a variance of an underlying asset, the value for the statistical property having a value which reflects an average volatility of price returns of the underlying asset over a predefined time period;
• create the variance derivative associated the underlying asset based on the statistical property reflecting a variance of an underlying asset, wherein the variance derivative is settled based on a difference between a cumulative realized variance and a strike price set at a fixed second cumulative realized variance, wherein the strike price is set at the fixed second cumulative realized variance when the variance derivative is created;
• and
• display the statistical property having a value which reflects an average volatility of price returns of the underlying asset over a predefined time period on a trading platform display device coupled with the trading platform.