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

Abstract

A method of creating and trading derivative contracts based on a statistical property reflecting a variance of an underlying asset is disclosed. Typically, an underlying asset is chosen to be a base of a variance derivative and a processor calculates a value of the statistical property reflecting an average volatility of price returns of the underlying asset over a predefined period. A trading facility display device coupled to a trading platform then displays the variance derivative based on the value of the statistical property reflecting the volatility of the underlying asset and the trading facility transmits variance derivative quotes from liquidity providers over at least one dissemination network.

1 . A method of creating derivatives based on a variance of an underlying asset, comprising:
 calculating a value for a statistical property reflecting the variance of the underlying asset on a processor, the value for the statistical property having a dynamic value which reflects an average volatility of price returns of the underlying asset over a predefined time period;   displaying at least one variance derivative based on the statistical property reflecting variance on a trading facility display device coupled to a trading platform; and   transmitting at least one variance derivative quote of a liquidity provider from the trading facility to at least one market participant.