Method and system for providing risk tranches in an investment product

Abstract

A method and system for investing in an investment fund by at least one investor are provided. The method includes defining at least two tranches of the investment fund, each tranche associated with a tranche risk profile. The method includes, for each investor, receiving an investment amount in each tranche. The method includes calculating a profit/loss for each investor based on the investment amounts, the tranche risk profiles and a performance of the investment fund.

1 . A computer-implemented investment method, comprising:
 for each of at least one of the investors, in accordance with instructions of the investor, allocating, by a computer processor, to each of at least two of a plurality of tranches of an investment product, a respective portion of investment amount of the respective investor, wherein the plurality of tranches have different risk profiles with respect to a same investment fund.   
     
     
         2 . The method of  claim 1 , further comprising:
 calculating a profit/loss return for the investor at an end of a predetermined period based on the investment amount positions, the tranche risk profiles of the at least two tranches and a performance of the investment fund.   
     
     
         3 . The method of  claim 1 , wherein each tranche risk profile includes at least one of a priority upside attachment point, an upside attachment point, a priority upside participation percentage, a pro-rata upside attachment point, a priority upside detachment point, a priority downside attachment point, a downside detachment point, and a downside participation percentage. 
     
     
         4 . The method of  claim 3 , further comprising:
 determining a priority upside detachment point strike price K 1  for a first one of the plurality of tranches based on an initial underlying asset price, investment capital of the plurality of tranches, and a downside detachment point L m , of the first tranche by computing −C(K 1 )·b/S 0 +P (K 3 )·(a+b)/S 0 +C(K 2 )·b/S 0 −P(K 2 )·b/S 0 =0, wherein:   C(K 1 ), C(K 2 ), and C(K 3 ) are call values determined in accordance with a chosen option valuation model as a function of strike price arguments K 1 , K 2 , and K 3 , respectively;   P(K 1 ), P(K 2 ), and P(K 3 ) are put values determined in accordance with the chosen option valuation model as a function of the strike price arguments K 1 , K 2 , and K 3 , respectively;   S 0  is the initial underlying asset price;   a is the capital of the first tranche;   b is the capital of a second one of the plurality of tranches;   strike price argument K 2  equals S 0 ; and   strike price argument K 3  is equal to S 0 (1−L m ).   
     
     
         5 . The method of  claim 3 , wherein a loss in the investment fund is first allocated to a higher downside priority tranche and a profit in the investment fund is first allocated to a higher upside priority. 
     
     
         6 . The method of  claim 3 , wherein an allocation of loss to a tranche is limited to the downside detachment point of the tranche. 
     
     
         7 . The method of  claim 3 , wherein a loss in the investment fund is allocated between the tranches based on each tranche's downside percentage and a profit in the investment fund is allocated based on each tranche's upside percentage. 
     
     
         8 . The method of  claim 1 , wherein the tranches are priced as a set of replicated options. 
     
     
         9 . The method of  claim 1 , further comprising:
 calculating an initial value associated with each tranche based on each respective tranche risk profile.   
     
     
         10 . The method of  claim 1 , wherein:
 the allocating includes selecting an investment amount in each tranche in accordance with at least one of: amounts specified by the instructions; and percentages specified by the instructions; and   an aggregate investment amount of the investor in all of the at least two tranches provides a risk/reward profile that is customized for the investor.   
     
     
         11 . The method of  claim 1 , wherein the allocating includes selecting an investment amount in each tranche in accordance with a requested customized risk/reward profile specified by the instructions, an aggregate investment amount of the investor in all of the at least two tranches providing the requested customized risk/reward profile. 
     
     
         12 . The method of  claim 1 , further comprising:
 responsive to an investor purchase during an illiquid period, reallocating an investment in a tranche from a first investor to a second investor.   
     
     
         13 . A computer-implemented investment method, comprising:
 allocating, by a computer processor, one of a profit and a loss resulting from an investment in at least one at least one investment fund to a plurality of tranches of an investment product;   wherein:
 shares of each of the plurality of tranches are sold to a plurality of investors in the investment product; 
 the tranches have different assigned risk profiles; 
 at least one share of each of multiple ones of the plurality of tranches is sold to a single one of the plurality of investors; 
 for each of the plurality of tranches, a respective monetary sum is received for the sale of the shares of the respective tranche; 
 a total of the monetary sums is invested as a single investment in at least one investment fund; and 
 the allocation is in accordance with the assigned risk profiles and in a manner disproportionate to respective percentages of the total to which the respective monetary sums correspond. 
   
     
     
         14 . The investment method of  claim 13 , further comprising:
 calculating initial values of the shares based on a set of European-style call and put options that is equivalent to the plurality of tranches.   
     
     
         15 - 20 . (canceled) 
     
     
         21 . A computer system controlling investments in an investment fund by an investor, comprising:
 a memory, the memory configured to store:
 data representing a plurality of tranche risk profiles of a respective plurality of tranches, each associated with a same investment fund; and 
 for an investor, at least two records, each record (a) indicating a respective position of an investment amount of the investor and (b) associated with a different respective one of the plurality of tranche risk profiles; and 
   a processor configured to calculate a profit/loss for the investor based on the investment amount positions, the tranche risk profiles and a performance of the investment fund;   wherein:
 each tranche risk profile includes at least one of a priority upside attachment point, an upside attachment point, a priority upside participation percentage, a pro-rata upside attachment point, a priority upside detachment point, a priority downside attachment point, a downside detachment point, and a downside participation percentage; and 
   the tranches are priced as a set of replicated options.   
     
     
         22 - 24 . (canceled)