Target Outcome Fund

Abstract

A target outcome fund mimics an option in an underlying risky asset by holding a mix of the risky asset and a low-risk asset. The relative amount of the risky asset and the low risk asset held by the fund is rebalanced based on a comparison of a current target return and a current actual return of the fund. If the fund over-performs, the target outcome is increased accordingly to prevent the fund becoming overly invested in the risky asset, thereby protecting gains made.

What is claimed is: 
     
         1 . A method for managing a target outcome fund, the method comprising:
 calculating a delta of an option for a risky asset, the risky asset having a high volatility relative to a low-risk asset, wherein the delta is a measure of how a value of an option for the risky asset will move given a change in value of the risky asset;   determining, by a process executed by a computer processor, a balance between a quantity of the risky asset and a quantity of the low-risk asset, wherein the balance is determined based on the calculated delta to cause a performance of the target outcome fund to approximate a performance of the option for the risky asset;   initiating one or more transactions using a trading system to gain exposure to the risky and low-risk assets by the target outcome fund according to the determined balance between the risky and low-risk assets; and   performing a plurality of rebalancings on the target outcome fund, each rebalancing occurring at a different time and including one or more transactions using the trading system that update the balance between the quantity of the risky asset and the quantity of the low-risk asset, the updated balance based on a current performance of the fund.   
     
     
         2 . The method of  claim 1 , wherein the risky asset comprises a diversified global equity market portfolio. 
     
     
         3 . The method of  claim 1 , wherein the risky asset comprises an MSCI ACWI Index Fund. 
     
     
         4 . The method of  claim 1 , wherein the low-risk asset comprises a 1-3 Government/Credit Index fund. 
     
     
         5 . The method of  claim 1 , wherein each rebalancing comprises:
 calculating a target return of the target outcome fund based on an expected performance of the risky and low-risk assets in the target outcome fund;   calculating an actual return of the target outcome fund based on an actual performance of the risky and low-risk assets; and   comparing the target return to the actual return to determine the current performance of the fund.   
     
     
         6 . The method of  claim 5 , wherein, for a given rebalancing, the target return is calculated at the start of a period of time corresponding to the target and actual returns, and the actual return is calculated and the end of the period of time. 
     
     
         7 . The method of  claim 5 , wherein calculating the target return comprises, for a given recalculation:
 comparing the actual return of the target outcome fund to a previous target return for a period of time preceding the recalculation; and   calculating the target return based on the actual return if the actual return is greater than the previous target return.   
     
     
         8 . The method of  claim 5 , wherein calculating the target return comprises, for a given recalculation:
 comparing the actual return of the target outcome fund to a previous target return for a period of time preceding the recalculation; and   calculating the target return based on the previous target return if the actual return is less than the previous target return.   
     
     
         9 . The method of  claim 1 , wherein delta is calculated using Scholes-Black formula. 
     
     
         10 . The method of  claim 1 , wherein the rebalancing is performed at least monthly. 
     
     
         11 . The method of  claim 1 , wherein the rebalancings are initiated by a fund manager. 
     
     
         12 . A system for managing a target outcome fund, the system comprising:
 a non-transitory memory for storing one or more functional modules;   a processor for performing instructions stored in the memory;   a creation module stored in the memory comprising instructions for:
 calculating a delta of an option for a risky asset, the risky asset having a high volatility relative to a low-risk asset, wherein the delta is a measure of how a value of an option for the risky asset will move given a change in value of the risky asset; and 
 determining a balance between a quantity of the risky asset and a quantity of the low-risk asset, wherein the balance is determined based on the calculated delta to cause a performance of the target outcome fund to approximate a performance of the option for the risky asset; 
   a trading interface module stored in the memory comprising instructions for communicating with a trading system to initiate one or more transactions using a trading system to gain exposure to the risky and low-risk assets by the target outcome fund according to the determined balance between the risky and low-risk assets; and   a rebalancing module stored in the memory comprising instructions for performing a plurality of rebalancings on the target outcome fund, each rebalancing occurring at a different time and including one or more transactions using the trading system that update the balance between the quantity of the risky asset and the quantity of the low-risk asset, the updated balance based on a current performance of the fund.   
     
     
         13 . The system of  claim 16 , further comprising:
 an accounting module stored in the memory comprising instructions for maintaining a record of assets held by the target outcome fund by monitoring transactions with the trading system.   
     
     
         14 . The system of  claim 17 , wherein the accounting module is further comprises instructions for:
 receiving notifications of transactions including shares of the target outcome fund in a secondary market; and   updating a record of ownership of shares of the target outcome fund based on the notifications.   
     
     
         15 . The system of  claim 12 , wherein each rebalancing comprises:
 calculating a target return of the target outcome fund based on an expected performance of the risky and low-risk assets in the target outcome fund;   calculating an actual return of the target outcome fund based on an actual performance of the risky and low-risk assets; and   comparing the target return to the actual return to determine the current performance of the fund.   
     
     
         16 . The system of  claim 15 , wherein, for a given rebalancing, the target return is calculated at the start of a period of time corresponding to the target and actual returns, and the actual return is calculated and the end of the period of time. 
     
     
         17 . The system of  claim 15 , wherein calculating the target return comprises, for a given recalculation:
 comparing the actual return of the target outcome fund to a previous target return for a period of time preceding the recalculation; and   calculating the target return based on the actual return if the actual return is greater than the previous target return.   
     
     
         18 . The system of  claim 15 , wherein calculating the target return comprises, for a given recalculation:
 comparing the actual return of the target outcome fund to a previous target return for a period of time preceding the recalculation; and   calculating the target return based on the previous target return if the actual return is less than the previous target return.