Financial products having a demand-based, adjustable return, and trading ...

(54) FINANCIAL PRODUCTS HAVING A

DEMAND-BASED, ADJUSTABLE RETURN,
AND TRADING EXCHANGE THEREFOR

(75) Inventor: Jeffrey Lange, New York, NY (US)

(73) Assignee: Longitude, Inc., New York, NY (US)

( * ) Notice: Subject to any disclaimer, the term ol this patent is extended or adjusted under 35 U.S.C. 154(b) by 0 days.

(21) Appl. No.: 09/448,822

(22) Filed: Nov. 24, 1999

Related U.S. Application Data

(60) Provisional application No. 60/144,890, filed on Jul. 21, 1999.

(51) Int. C I. G06F 17/60

(52) U.S. CI 705/37; 705/1; 705/35;

705/36; 705/37; 705/38

(58) Field of Search 705/35, 36, 37,

705/23, 26, 38

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This invention provides methods and systems for trading and investing in groups ol demand-based adjustable-return contingent claims, and for establishing markets and exchanges for such claims. The advantages ol the present invention, as applied to the derivative securities and similar financial markets, include increased liquidity, reduced credit risk, improved information aggregation, increased price transparency, reduced settlement or clearing costs, reduced hedging costs, reduced model risk, reduced event risk, increased liquidity incentives, improved sell-consistency, reduced influence by market makers, and increased ability to generate and replicate arbitrary payout distributions, In addition to the trading ol derivative securities, the present invention also lacilitates the trading ol other financialrelated contingent claims; non-financial-related contingent claims such as energy, commodity, and weather derivatives; traditional insurance and reinsurance contracts; and contingent claims relating to events which have generally not been readily insurable or hedgeable such as corporate earnings announcements, future semiconductor demand, and changes in technology. A preferred embodiment of a method of the present invention includes the steps of (a) establishing a plurality of defined states and a plurality of predetermined termination criteria, wherein each of the defined states corresponds to at least one possible outcome of an event of economic significance; (b) accepting investments of value units by a plurality of traders in the defined states, and (c) allocating a payout to each investment upon the fulfillment of predetermined termination criteria.

24 Claims, 11 Drawing Sheets

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