System and method for emulating a long/short hedge fund index in a trading system

1. A system, comprising:

a computer memory configured to store a compound index that is based at least in part on:

a plurality of component indices, wherein the plurality of component indices comprise:

an international developed markets equity index;

a United States large-cap equity index; and

a United States small-cap equity index;

and

a plurality of weights, wherein each weight is associated with a respective one of the plurality of component indices;

and

a computer processor that is communicatively coupled to the memory and configured to:

update the plurality of weights according to a regression analysis, wherein:

the regression analysis is based at least in part on a respective set of returns associated with each of the plurality of component indices and with a hedge fund index, wherein:

the hedge fund index is based at least in part on a plurality of hedge funds;

and

each of the plurality of hedge funds comprises long equities that are hedged with short sales of at least one of the following:

 equities; and

 equity options; and

the plurality of weights are updated such that the compound index emulates the hedge fund index;

determine a current compound index value based at least in part on the plurality of component indices and on the updated plurality of weights; and

transmits the current compound index value to one or more clients.

2. The system of claim 1 , wherein:

the computer processor allocates a plurality of investment instruments of a fund;

the fund comprises:

a first set of investment instruments associated with the international developed markets equity index;

a second set of investment instruments associated with the United States large-cap equity index; and

a third set of investment instruments associated with the United States small-cap equity index;

and

the plurality of investment instruments are allocated according to the updated weights.

3. The system of claim 2 , wherein allocating the plurality of investment instruments comprises generating one or more trading orders associated with at least one of the plurality of investment instruments.

4. The system of claim 1 , wherein the hedge fund index is an equity hedge index.

5. The system of claim 1 , wherein:

the international developed markets equity index is an United States dollar net total return index;

the United States large-cap equity index is a 500 total return index; and

the United States small-cap equity index is a 2000 total return index.

6. The system of claim 1 , wherein the updating of the plurality of weights is based at least in part on an interest rate.

7. The system of claim 1 , wherein the respective set of returns associated with a particular component index comprises a plurality of monthly returns associated with the particular component index; and

each monthly return is associated with a respective month from a sampling period that spans at least twelve months.

8. The system of claim 1 , wherein:

each set of returns is updated on a monthly basis; and

the plurality of weights are updated on a monthly basis.

9. A method, comprising:

storing in a computer memory a value of a compound index that is based at least in part on:

a plurality of component indices, wherein the plurality of component indices comprise:

an international developed markets equity index;

a United States large-cap equity index; and

a United States small-cap equity index;

and

a plurality of weights, wherein each weight is associated with a respective one of the plurality of component indices;

updating, using a computer processor, the plurality of weights according to a regression analysis, wherein:

the regression analysis is based at least in part on a respective set of returns associated with each of the plurality of component indices and with a hedge fund index, wherein:

the hedge fund index is based at least in part on a plurality of hedge funds; and

each of the plurality of hedge funds comprises long equities that are hedged with short sales of at least one of the following:

equities; and

equity options; and

the plurality of weights are updated such that the compound index emulates the hedge fund index;

determining, using the computer processor, a current compound index value based at least in part on the plurality of component indices and on the updated plurality of weights; and

transmitting the current compound index value to one or more clients.

10. The method of claim 9 , further comprising:

allocating a plurality of investment instruments of a fund, wherein:

the fund comprises:

a first set of investment instruments associated with the international developed markets equity index;

a second set of investment instruments associated with the United States large-cap equity index; and

a third set of investment instruments associated with the United States small-cap equity index; and

the plurality of investment instruments are allocated according to the updated weights.

11. The method of claim 10 , wherein allocating the plurality of investment instruments comprises generating one or more trading orders associated with at least one of the plurality of investment instruments.

12. The method of claim 9 , wherein the hedge fund index is an equity hedge index.

13. The method of claim 9 , wherein:

the international developed markets equity index is an United States dollar net total return index;

the United States large-cap equity index is a 500 total return index; and

the United States small-cap equity index is a 2000 total return index.

14. The method of claim 9 , wherein the updating of the plurality of weights is based at least in part on an interest rate.

15. The method of claim 9 , wherein the respective set of returns associated with a particular component index comprises a plurality of monthly returns associated with the particular component index; and

each monthly return is associated with a respective month from a sampling period that spans at least twelve months.

16. The method of claim 9 , wherein:

each set of returns is updated on a monthly basis; and

the plurality of weights are updated on a monthly basis.

17. A computer readable medium tangibly embodied with executable code for updating a compound index, the code operable when executed by a computer processor to:

store a compound index that is based at least in part on:

a plurality of component indices, wherein the plurality of component indices comprise:

an international developed markets equity index;

a United States large-cap equity index; and

a United States small-cap equity index;

and

a plurality of weights, wherein each weight is associated with a respective one of the plurality of component indices;

update the plurality of weights according to a regression analysis, wherein:

the regression analysis is based at least in part on a respective set of returns associated with each of the plurality of component indices and with a hedge fund index, wherein:

the hedge fund index is based at least in part on a plurality of hedge funds;

and

each of the plurality of hedge funds comprises long equities that are hedged with short sales of at least one of the following:

 equities; and

 equity options; and

the plurality of weights are updated such that the compound index emulates the hedge fund index;

determine a current compound index value based at least in part on the plurality of component indices and on the updated plurality of weights; and

transmit the current compound index value to one or more clients.

18. The logic of claim 17 , wherein:

the respective set of returns associated with a particular component index comprises a plurality of monthly returns associated with the particular component index; and

each monthly return is associated with a respective month from a sampling period that spans at least twelve months.