USRE43435EExpiredUtility
Financial instruments, system, and exchanges (financial, stock, option and commodity) based upon realized volatility
Est. expiryFeb 15, 2020(expired)· nominal 20-yr term from priority
Inventors:Robert Krause
G06Q 40/06G06Q 40/04G06Q 40/00
90
PatentIndex Score
31
Cited by
12
References
50
Claims
Abstract
A financial instrument, exchange, and method based upon the volatility in the price of an underlying. Such volatility contracts have a creation date, a term expiring at an expiration date, and a settlement price at the expiration date defined as “Svol”, under the formula: Svol=f{Rt1,Rt2,Rt3, . . . , Rtn}, wherein: Svol≧0, n>1, t=each of a series of observation points from 1 to “n”; Rt=return of the underlying based upon each of the observation points in time “tn”; and n=total number of observations within the term. The term is selected from the group consisting of days, months, quarters and years. The settlement price is annualized based upon an approximate total number of periods in a calendar year. Rt is selected from the group consisting of: R t = ln ( M t M t - 1 ) and R t = ( M t - M t - 1 M t - 1 ) wherein: Mt=mark-to-market price at time “t”; and Mt−1=mark-to-market price at the time immediately prior to time “t”, at time “t−1”. The settlement price is determined in accordance with the following formula: S vol = P n ∑ n t = 1 R t 2 or S vol = P n - 1 ∑ n t = 1 ( R t - R _ ) 2 wherein: P=approximate number of trading periods in a calendar year, and each observation point “t” is taken at the same time in each trading period, and R=mean of all Rt's.
Claims
exact text as granted — not AI-modified1. A computer implemented method for the creation and trading of financial instruments based upon the volatility of an underlying comprising the following steps:
(a) creating at least one volatility contract for a predetermined term by a computer, with said at least one volatility contract having a predetermined formula for settlement price based on a realized formula, selected from the group consisting of:
S
vol
=
P
n
-
1
∑
t
=
1
n
(
R
t
-
R
_
)
2
(
1
)
wherein:
P=approximate number of trading periods in a calendar year, and each observation point “t” is taken at the same time in each trading period; and
R =the mean of all R t 's;
S
vol
=
P
hl
n
∑
t
=
1
n
(
ln
h
t
l
t
)
2
(
2
)
wherein:
P h1 =total number of trading periods in a year wherein two observations points “h t ” and “l t ” are used, and “h t ” is the high price point and “l t ” the low price point for each such trading period in that year; and
R t =f{h t , l t }; and
S
vol
=
P
ohlc
n
∑
t
=
1
n
[
1
2
(
ln
h
t
l
t
)
2
-
(
2
ln
(
2
)
-
1
)
(
ln
c
t
o
t
)
2
]
(
3
)
wherein:
P ohlc =total number of trading periods, wherein four observation points “h t ”, “l t ”, “c t ” and “o t ” are used, and “h t ” is the high price point, “l t ” the low price point, “c t ” is the closing, last, or daily settlement price, and “o t ” the opening price for each such trading period;
R t =f{h t , l t , c t , o t }; and
S
vol
=
P
n
∑
t
=
1
n
R
t
2
(
4
)
wherein:
P=approximate number of trading periods in a calendar year, and each observation point “t” is taken at the same time in each trading period; and
n=total number of observations within the term; and
R t =return of the underlying based upon each of the observation points in time “t n ”; and
(b) trading the at least one volatility contract at market-determined prices from creation through the date of expiration.
2. The method of claim 1, further including setting an approximate one-month expiration for said volatility contract.
3. The method of claim 1, further including setting an approximate three-month expiration for said volatility contract.
4. The method of claim 1, further including setting an approximate 12-month expiration for said volatility contract.
5. The method of claim 1, wherein
S
vol
=
P
n
∑
t
=
1
n
R
t
2
and further wherein P is the approximate number of trading periods in a calendar year, and each observation point t is taken at the same time in each trading period; n is the total number of observations within the term; and R t is the return of the underlying based upon each of the observation points in time t n .
6. The method of claim 5, wherein said number of trading periods in a calendar year is standardized.
7. The method of claim 6, further including setting an approximate one-month expiration for said volatility contract.
8. The method of claim 6, further including setting an approximate three-month expiration for said volatility contract.
9. The method of claim 6, further including setting an approximate 12-month expiration for said volatility contract.
10. A computer-implemented method for the creation and trading of financial instruments based upon the volatility of an underlying, comprising the following steps:
(a) creating a volatility contract for a predetermined term using a computer, said computer computing a settlement price based on a realized formula for said volatility contract selected from the group consisting of:
S
vol
=
P
n
-
1
∑
t
=
1
n
(
R
t
-
R
_
)
2
(
1
)
wherein P=approximate number of trading periods in a calendar year, and each observation point “t” is taken at the same time in each trading period; and R =mean of all R t 's;
S
vol
=
P
hl
n
∑
t
=
1
n
(
ln
h
t
l
t
)
2
(
2
)
wherein P hl =total number of trading periods in a year, wherein two observation points “h t ” and “l t ” are used, and “h t ” is the high price point and “l t ” the low price point for each such trading period in that year; and R t =f(h t , l t ); and
S
vol
=
P
ohlc
n
∑
t
=
1
n
[
1
2
(
ln
h
t
l
t
)
2
-
(
2
ln
(
2
)
-
1
)
(
ln
c
t
o
t
)
2
]
(
3
)
wherein P ohlc =total number of trading periods, wherein four observation points “h t ”, “l t ”, “c t ” and “o t ” are used, and “h t ” is the high price point, “l t ” the low price point, “c t ” is the closing, last, or daily settlement price, and “o t ” the opening price for each such trading period; R t =f(h t , l t , c t , o t ); and
S
vol
=
P
n
∑
t
=
1
n
R
t
2
(
4
)
wherein P=approximate number of trading periods in a calendar year, and each observation point “t” is taken at the same time in each trading period; and
n=total number of observations within the term; and
R t =return of the underlying based upon each of the observation points in time “t n ”; and
(b) trading the created volatility contract at market-determined prices from creation through the date of expiration.
11. The method of claim 10, wherein said number of trading periods in a calendar year is standardized.
12. The method of claim 11, further including computing said settlement price using a one-month expiration for said volatility contract.
13. The method of claim 11, further including computing said settlement price using a three-month expiration for said volatility contract.
14. The method of claim 11, further including computing said settlement price using a 12-month expiration for said volatility contract.
15. The method of claim 10, further including computing said settlement price using a one-month expiration for said volatility contract.
16. The method of claim 10, further including computing said settlement price using a three-month expiration for said volatility contract.
17. The method of claim 10, further including computing said settlement price using a 12-month expiration for said volatility contract.
18. The method of claim 10, wherein
S
vol
=
P
n
∑
t
=
1
n
R
t
2
and further wherein P is the approximate number of trading periods in a calendar year, and each observation point t is taken at the same time in each trading period; n is the total number of observations within the term; and R t is the return of the underlying based upon each of the observation points in time t n .
19. The method of claim 18, wherein said number of trading periods in a calendar year is standardized.
20. The method of claim 19, further including computing said settlement price using a one-month expiration for said volatility contract.
21. The method of claim 19, further including computing said settlement price using a three-month expiration for said volatility contract.
22. The method of claim 19, further including computing said settlement price using a 12-month expiration for said volatility contract.
23. The method of claim 18, further including computing said settlement price using a one-month expiration for said volatility contract.
24. The method of claim 18, further including computing said settlement price using a three-month expiration for said volatility contract.
25. The method of claim 18, further including computing said settlement price using a 12-month expiration for said volatility contract.
26. A computer-implemented method for the creation and trading of financial instruments based upon the volatility of an underlying, comprising:
(a) providing data for creating at least one volatility contract for a predetermined term in computer memory accessible to a computer data processor, said data having been generated using a predetermined formula for settlement price based on a realized formula selected from the group consisting of:
S
vol
=
P
n
-
1
∑
t
=
1
n
(
R
t
-
R
_
)
2
(
1
)
wherein P=is the approximate number of trading periods in a calendar year, and each observation point “t” is taken at the same time in each trading period; and
R =mean of all R t 's;
S
vol
=
P
hl
n
∑
t
=
1
n
(
ln
h
t
l
t
)
2
(
2
)
wherein P hl =total number of trading periods in a year, wherein two observation points “h t ” and “l t ” are used, and “h t ” is the high price point and “l t ” the low price point for each such trading period in that year, and R t =f(h t , l t ); and
S
vol
=
P
ohlc
n
∑
t
=
1
n
[
1
2
(
ln
h
t
l
t
)
2
-
(
2
ln
(
2
)
-
1
)
(
ln
c
t
o
t
)
2
]
(
3
)
wherein P ohlc =total number of trading periods, wherein four observation points “h t ”, “l t ”, “c t ” and “o t ” are used, and “h t ” is the high price point, “l t ” the low price point, “c t ” is the closing, last, or daily settlement price, and o t the opening price for each such trading period; and R t =f(h t , l t , c t , o t ); and
S
vol
=
P
n
∑
t
=
1
n
R
t
2
(
4
)
wherein P=approximate number of trading periods in a calendar year, and each observation point “t” is taken at the same time in each trading period;
n=total number of observations within the term;
and R t =return of the underlying based upon each of the observation points in time “t n ”; and
(b) creating by said computer data processor at least one volatility contract based on said provided data; and
(c) trading the at least one volatility contract at market-determined prices from creation through the date of expiration.
27. The method of claim 26, wherein said number of trading periods in a calendar year is standardized.
28. The method of claim 27, further including computing said settlement price using a one-month expiration for said volatility contract.
29. The method of claim 27, further including computing said settlement price using a three-month expiration for said volatility contract.
30. The method of claim 27, further including computing said settlement price using a 12-month expiration for said volatility contract.
31. The method of claim 26, further including computing said settlement price using a one-month expiration for said volatility contract.
32. The method of claim 26, further including computing said settlement price using a three-month expiration for said volatility contract.
33. The method of claim 26, further including computing said settlement price using a 12-month expiration for said volatility contract.
34. The method of claim 26, wherein
S
vol
=
P
n
∑
t
=
1
n
R
t
2
and further wherein P is the approximate number of trading periods in a calendar year, and each observation point t is taken at the same time in each trading period; n is the total number of observations within the term; and R t is the return of the underlying based upon each of the observation points in time t n .
35. The method of claim 34, wherein said number of trading periods in a calendar year is standardized.
36. The method of claim 35, further including computing said settlement price using a one-month expiration for said volatility contract.
37. The method of claim 35, further including computing said settlement price using a three-month expiration for said volatility contract.
38. The method of claim 35, further including computing said settlement price using a 12-month expiration for said volatility contract.
39. The method of claim 34, further including computing said settlement price using a one-month expiration for said volatility contract.
40. The method of claim 34, further including computing said settlement price using a three-month expiration for said volatility contract.
41. The method of claim 34, further including computing said settlement price using a 12-month expiration for said volatility contract.
42. The method of claim 26, further comprising determining a standardized contract multiplier.
43. The method of claim 42, wherein said contract multiplier is standardized among groups of financials or standardized among groups of commodities.
44. The method of claim 43, wherein said contract multiplier is standardized among groups of financials.
45. The method of claim 44, wherein said standardized contract multiplier is determined according to the formula:
$100,000×Volatility×Number of Months.
46. The method of claim 43, wherein said contract multiplier is standardized among groups of financials.
47. The method of claim 46, wherein said standardized contract multiplier is determined according to the formula:
$100,000×Volatility×Number of Months.
48. The method of claim 26, further comprising choosing a standardized formula to calculate realized volatility.
49. The method of claim 48, wherein said standardized formula is selected from one of said predetermined formulas for settlement price.
50. The method of claim 26, further comprising trading said volatility contract on an exchange.Join the waitlist — get patent alerts
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