Method and system for generating and trading derivative investment instruments based on a volatility arbitrage benchmark index

1. A non-transitory computer-readable medium containing processor executable program instructions for creating a volatility arbitrage benchmark index, the instructions configured to cause a processor to:

receive current values for an underlying asset of a volatility arbitrage benchmark derivative through a first communications interface;

calculate a value reflecting a volatility arbitrage benchmark for the underlying asset, wherein the value reflecting a volatility arbitrage benchmark is calculated according to a formula:

Index

t

=

Index

t

-

1

×

[

1

+

(

p

t

-

p

t

-

1

p

t

-

1

)

]

where Index t is a closing index value of a first time period; Index t-1 is a closing index value of a second time period; p t is a first time period closing price for a front-month derivative investment instrument; and p t-1 is a second time period closing price for the front-month derivative investment instrument;

pass the calculated volatility arbitrage benchmark value to a dissemination module;

receive the calculated volatility arbitrage benchmark value for the underlying asset from the volatility arbitrage benchmark index module; and

disseminate the calculated volatility arbitrage benchmark value through a second communications interface to at least one market participant.

2. The computer-readable medium of claim 1 , wherein the underlying asset is a futures contract.

3. The computer-readable medium of claim 1 , wherein the underlying asset is an options contract.

4. The computer-readable medium of claim 1 , wherein the first time period is a present day.

5. The computer readable medium of claim 4 , wherein the second time period is a day prior to the present day.

6. A method for calculating a volatility arbitrage benchmark index value, the method comprising:

in a first processor of a volatility arbitrage benchmark index module:

receiving current values for an underlying asset of a volatility benchmark arbitrage derivative via a first communication interface;

calculating a volatility arbitrage benchmark value of the underlying asset, the value for the volatility arbitrage benchmark according to a formula:

Index

t

=

Index

t

-

1

×

[

1

+

(

p

t

-

p

t

-

1

p

t

-

1

)

]

wherein Index t is a closing index value for a first time period, Index t-1 is a closing index value for a second time period, p t is a first time period closing price for a front-month derivative investment instrument; and p t-1 is a second time period closing price for the front-month derivative investment instrument;

displaying at least one value reflecting the volatility arbitrage benchmark of the underlying asset on a trading facility display device coupled to a trading platform; and

transmitting at least one volatility arbitrage benchmark derivative quote of a liquidity provider to at least one market participant.

7. The method according to claim 6 , wherein the first time period is a present day.

8. The method according to claim 7 , wherein the second time period is a day prior to the present day.

9. The method according to claim 6 , wherein the underlying asset is selected from the group consisting of: equity indexes or securities; fixed income indexes or securities; foreign currency exchange rates; interest rates; commodity indexes; and commodity or structured products traded on a trading facility or over-the-counter market.

10. The method according to claim 6 , wherein the derivative investment instrument is a three-month realized variance future.

11. A method for creating and trading derivatives based on a volatility arbitrage benchmark of an underlying asset, comprising:

a first processor of a volatility arbitrage benchmark index module:

receiving, over a communication network via a first communications interface, current values for an underlying asset of a volatility arbitrage benchmark derivative;

calculating a volatility arbitrage benchmark value for the underlying asset, wherein the volatility arbitrage benchmark value is calculated according to a formula:

Index

t

=

Index

t

-

1

×

[

1

+

(

p

t

-

p

t

-

1

p

t

-

1

)

]

wherein Index t is a closing index value for a first time period, Index t-1 is a closing index value for a second time period, p t is a first time period closing price for a front-month derivative investment instrument; and p t-1 is a second time period closing price for the front-month derivative investment instrument; and

passing the value for the calculated volatility arbitrage benchmark to a dissemination module via the communication network; and

a second processor of the dissemination module:

receiving, over the communication network via a second communications interface, the calculated volatility arbitrage benchmark value for the underlying asset from the volatility arbitrage benchmark index module; and

disseminating the calculated volatility arbitrage benchmark value through the second communications interface to at least one market participant.

12. The method of claim 11 , further comprising:

a third processor of a trading module in communication with the communications network:

receiving at least one buy or sell order over the communications network;

executing the buy or sell order; and

passing a result of the buy or sell order to the dissemination module; and

the second processor of the dissemination module:

receiving the result of the buy or sell order from the trading module; and

disseminating the result of the buy or sell order over the communications network to the at least one market participant.

13. The method according to claim 11 , wherein the first time period is a present day.

14. The method according to claim 13 , wherein the second time period is a day prior to the present day.

15. The method according to claim 11 , wherein the underlying asset is selected from the group consisting of: equity indexes or securities; fixed income indexes or securities; foreign currency exchange rates; interest rates; commodity indexes; and commodity or structured products traded on a trading facility or over-the-counter market.