# US 8,788,381 B2 · System and method for creating and trading a digital derivative investment instrument > Agents: this data is available as JSON from the patentgrep API and MCP server — see https://patentgrep.com/llms.txt - Number: US 8,788,381 B2 - Document ID: US8788381B2 - Status: Granted - Kind: B2 - Application number: 12/575,250 - Filed: 2009-10-07 - Published: 2010-06-17 - Granted: 2014-07-22 - Earliest claimed: 2008-10-08 - Assignees: Chicago Board Options Exchange, Incorporated - Applicants: Catherine T. Shalen - Inventors: Catherine T. Shalen - Web page: https://patentgrep.com/patent/US8788381B2 ## CPC - G06Q 40/04: Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange - G06Q 40/00: Finance; Insurance; Tax strategies; Processing of corporate or income taxes - G06Q 40/06: Asset management; Financial planning or analysis - G06Q: INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR ## Abstract An investment instrument is disclosed that allows investors to take risk positions relative to the occurrence or non-occurrence of a contingent binary event. The contingent binary event will have one of two possible outcomes. In a digital derivatives contract, a long investor agrees to pay a short investor a contract amount in return for the short investor agreeing to pay the long investor one of two different settlement amounts depending on the outcome as the contingent binary event. Typically, one settlement amount will be zero and the other will be an amount greater than the derivatives contract price. ## Claims ### Claim 1 A computer implemented method of creating a financial instrument with a processor of an exchange, the method comprising: establishing a plurality of credit event categories with a digital derivative contract definition module in an exchange backend system; establishing, with a binary variable monitoring module, a digital derivative contract with a payout amount that is based on an index of a plurality of entities, wherein the digital derivative contract provides the payout amount based on: a first settlement plan when each one of the plurality of entities in the index is associated with a credit event in the plurality of credit event categories; a second settlement plan when none of the plurality of entities in the index is associated with a credit event in the plurality of credit event categories; and a third settlement plan when at least one, but not all, of the plurality of entities in the index is associated with a credit event in the plurality of credit event categories. ### Claim 2 (depends on 1) The method according to claim 1 wherein the plurality of credit event categories includes bankruptcy. ### Claim 3 (depends on 1) The method according to claim 1 wherein the plurality of credit event categories includes a non-payment of a debt. ### Claim 4 (depends on 1) The method according to claim 1 wherein at least one of the plurality of entities in the index is a corporation. ### Claim 5 (depends on 1) The method according to claim 1 wherein at least one of the plurality of entities in the index is a sovereign entity. ### Claim 6 (depends on 1) The method according to claim 1 wherein the payout amount is amortized as a periodic payment until either a credit event or redemption event in a debt of at least one of the plurality of entities in the index is confirmed, or until an expiration of the digital derivative contract if no credit event or redemption is confirmed before expiration. ### Claim 7 (depends on 1) The method of claim 1 further comprising: amortizing the payout amount as a periodic payment until either a predefined event or a redemption in a debt of at least one of the plurality of entities in the index is confirmed, or until the expiration of the digital derivative contract if no predefined event or a redemption is confirmed before expiration. ### Claim 8 (depends on 7) The method according to claim 7 wherein at least one of the plurality of entities in the index is a corporation. ### Claim 9 (depends on 7) The method according to claim 7 wherein at least one of the plurality of entities in the index is an index. ### Claim 10 (depends on 6) The method according to claim 6 wherein when the credit event is confirmed for at least one of the plurality of entities in the index, the processor removes the at least one of the plurality of entities associated with the confirmed credit event from the index. ### Claim 11 (depends on 1) The method according to claim 1 wherein the payout amount is an amortized payment. ### Claim 12 (depends on 11) The method according to claim 11 wherein the first settlement plan stops the amortized payment. ### Claim 13 (depends on 11) The method according to claim 11 wherein the second settlement plan continues the amortized payment until an expiration time associated with the digital derivative contract. ### Claim 14 (depends on 11) The method according to claim 11 wherein the third settlement plan reduces the amortized payment in accordance with the number of the plurality of entities in the index is associated with a credit event in the plurality of credit event categories. ### Claim 15 (depends on 1) The method according to claim 1 further comprising calculating a settlement amount for the digital derivative contract with a settlement calculation module in the exchange backend system according to whether a credit event is associated with one of the plurality of entities in the index or none of the plurality of entities in the index.