SYSTEMS AND METHODS FOR TRADING ACTIVELY MANAGED FUNDS
Embodiments include systems and methods for evaluating the integrity of a model portfolio designed to have substantially the same values, returns, or risk characteristics as a financial instrument. Embodiments include operating a first computer to perform a statistical comparison between said model portfolio and the financial instrument, wherein said statistical comparison compares at least one of the periodic values, returns, and risk characteristics of the model portfolio and the financial instrument over some period of time. The results of the statistical comparison are periodically published throughout a trading day for use by a trader to at least one (i) price and (ii) hedge an investment in the financial instrument. According to embodiments, the model portfolio does not reveal the holdings of a reference asset for the financial instrument.
1 . A method for creating a portfolio to model a fund without revealing the fund assets, comprising the steps of:
measuring an exposure of the fund to a set of risk factors by at least one computer executing computer software to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of instruments and each fund sensitivity coefficient indicates the exposure of the fund to at least one of the risk factors;
storing the fund sensitivity coefficients on computer readable media; and
creating a proxy portfolio by the at least one computer from instruments selected from a proxy universe of instruments, wherein the proxy portfolio has substantially the same sensitivity coefficients as the fund,
wherein the proxy portfolio does not reveal at least one of the group consisting of the fund assets and changes in the fund assets.
2 . The method of claim 1 , further comprising:
pricing or hedging, by one or more trader computers, investments in the fund without knowing the at least one of the group consisting of a composition of the fund and changes to the composition of the fund; and
trading, by the one or more trader computers, shares of the fund.
3 . The method of claim 1 , further comprising the step of:
creating, by the computer, a hedging portfolio based on the proxy portfolio, wherein the hedging portfolio does not reveal at least one of the group consisting of the fund assets and changes in the fund assets.
4 . A system for creating a portfolio to model a fund comprising:
at least one computer programmed to measure an exposure of the fund to a set of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of instruments and each fund sensitivity coefficient indicates the exposure of the fund to at least one of the risk factors,
the at least one computer being further programmed to create a proxy portfolio from instruments selected from a proxy universe of instruments,
wherein the proxy portfolio has substantially the same sensitivity coefficients as the fund and does not reveal at least one of the group consisting of the fund assets and changes in the fund assets.
5 . The system of claim 4 , further comprising one or more trader computers programmed to trade shares of the fund and use information derived from the proxy portfolio to price or hedge investments in the fund without knowing at least one of the group consisting of the composition of the fund and changes in the composition of the fund.
6 . A system for creating a portfolio to model a fund comprising:
one or more computers programmed to measure an exposure of the fund to a set of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of instruments and each fund sensitivity coefficient indicates the exposure of the fund to one of the risk factors;
the one or more computers further programmed to create a proxy portfolio from instruments selected from a proxy universe of instruments, wherein the proxy portfolio has substantially the same sensitivity coefficients as the fund; and
the one or more computers further programmed to create a hedging portfolio based on the proxy portfolio, wherein the hedging portfolio does not reveal at least one of the group consisting of the fund assets and changes in the fund assets.
7 . The system of claim 6 , further comprising one or more trader computers programmed to trade shares of the fund and use information derived from the hedging portfolio to hedge investments in the fund without knowing at least one of the group consisting of the composition of the fund and changes in the composition of the fund.
8 . The system of claim 4 , wherein the at least one computer is further programmed with a graphical user interface, including a graphical dial, slide bar, or other graphical indicator configured to adjust user inputs,
wherein the user inputs comprise one or more of size of aggregation buckets, database minimum data density requirements, banding time, a number of returns used to build the model, a type of weighting, a percent variation used for eigenvalue and factor culling, and a total number of factors to be used in the model.
9 . A data storage device storing software to create a portfolio to model a fund without revealing the fund assets, the software having instructions for causing one or more computers to:
measure an exposure of the fund to a set of risk factors to produce a set of fund sensitivity coefficients, wherein the risk factors comprise a historical time series of price data for a set of instruments and each fund sensitivity coefficient indicates the exposure of the fund to at least one of the risk factors; and
create a proxy portfolio from instruments selected from a proxy universe of instruments, wherein the proxy portfolio has substantially the same sensitivity coefficients as the fund, and
wherein the proxy portfolio does not reveal at least one of the group consisting of the fund assets and changes in the fund assets.
10 . The data storage device of claim 9 , further comprising software that, when executed, causes one or more computers to trade shares of the fund and use information derived from the proxy portfolio to price or hedge investments in the fund without knowing at least one of the group consisting of the composition of the fund and changes in the composition of the fund.
11 . A method comprising:
selecting, by at least one programmed computer, a second set of instruments that substantially tracks the returns of a first set of instruments over the course of a predetermined period of time,
wherein the second set of instruments serves as a proxy for the first set of instruments, and
wherein the second set of instruments does not reveal at least one of the group consisting of the first set of instruments and changes in the first set of instruments.
12 . The method of claim 11 , wherein the predetermined period of time comprises one or more trading days.
13 . The method of claim 11 , further comprising:
pricing, by one or more market participant computers, the first set of instruments based on information derived from the second set of instruments,
said pricing occurring without knowing at least one of the group consisting of the composition of the first set of instruments and changes in the composition of the first set of instruments.
14 . The method of claim 11 , wherein the second set of instruments comprises at least one of the group consisting of a creation basket portfolio and a redemption basket portfolio.
15 . The method of claim 11 , further comprising:
executing, by the at least one programmed computer, a method to select the second set of instruments.
16 . The method of claim 15 , wherein the method to select the second set of instruments comprises:
executing, by the at least one programmed computer, a Monte Carlo method to select the second set of instruments.
17 . The method of claim 15 , wherein the method to select the second set of instruments comprises:
executing, by the at least one programmed computer, a risk factor method to select the second set of instruments.
18 . The method of claim 17 , wherein the risk factor method comprises an economic risk factor method.
19 . The method of claim 17 , wherein the risk factor method comprises a statistical risk factor method.
20 . A method comprising:
selecting, by one or more programmed computers, a second set of instruments that substantially tracks the returns of a first set of instruments over the course of a predetermined period of time; and
creating, by one or more market participant computers, a hedging position in the first set of instruments based on information derived from the second set of instruments,
wherein the second set of instruments does not reveal at least one of the group consisting of the first set of instruments and changes in the first set of instruments.
21 . The method of claim 20 , wherein the predetermined period of time comprises one or more trading days.
22 . The method of claim 20 , wherein the hedging position is created without knowing at least one of the group consisting of the composition of the first set of instruments and changes in the composition of the first set of instruments.
23 . The method of claim 20 , further comprising:
executing, by the one or more programmed computers, a Monte Carlo method to select the second set of instruments.
24 . The method of claim 20 , further comprising:
executing, by the one or more programmed computers, a risk factor method to select the second set of instruments.
25 . The method of claim 24 , wherein the risk factor method comprises an economic risk factor method.
26 . The method of claim 24 , wherein the risk factor method comprises a statistical risk factor method.
27 . The method of claim 20 , wherein the second set of instruments comprises a hedging portfolio derived from a proxy portfolio generated by the one or more programmed computers to substantially track the returns of the first set of instruments.