Price earnings derivative financial product
A system for and method of using a financial instrument to take a view on a price-to-earnings ratio for a set of one or more equities. The system and method may be used to commodify the price-to-earnings ratio for one or more equities, such a as a stock or an index. The system and method may include a financial instrument that allows a user to take a view on an earnings, or ratio comprising price and earnings, for underlying equities.
1. A system for using an earnings to value a financial product based upon at least one equity as part of a transaction, the system comprising;
a programmed computer processor configured m calculate a payoff using an earnings function and a quantity, in accordance with a contract, the earnings function outputting a strike earnings;
wherein the contract specifies the earnings function and the earnings function is associated with a set comprising at least one equity, the contract further specifying the quantity associated with the set comprising at least one equity, and a transaction comprises at least part of the payoff.
2. The system of claim 1 , wherein the earnings function comprises an empirically measured earnings value of a set comprising at least one equity, wherein the empirically measured earnings value is empirically measured subsequent to the selecting.
3. The system of claim 1 , wherein the earnings function is a constant function, the constant function representing a strike earnings value.
4. The system of claim 1 , wherein the earnings function comprises at least one of a floor and a ceiling.
5. The system of claim 1 , wherein the programmed computer processor is configured to repeatedly calculate a value of at least one quantity using the earnings function in accordance with the contract, further comprising a second transaction comprising at least part of the value.
6. The system of claim 1 , further comprising a swap, wherein the transaction is part of the swap.
7. The system of claim 1 , wherein the quantity comprises a notional number of equities.
8. The system of claim 1 , wherein the set comprising at least one equity is selected from the group consisting of: an index, a basket of stocks, and a stock.
9. The system of claim 1 , wherein the financial product comprises a financial product selected from the group consisting of: a bond, a put option, a call option, an American option, a European option, and a swaption.
10. A system of using an earnings to value a financial product based upon at least one equity, as part of a transaction, the system comprising:
a processor; and
a memory comprising computer-readable instructions which when executed by the processor cause the processor to perform the steps comprising:
recording an earnings function for future use, the earnings function being associated with a set comprising at least one equity, the set comprising at least one equity being associated with a quantity;
calculating a payoff using the earnings function, and the quantity, the earnings function outputting a strike earnings; and
conducting a transaction, subsequent to the calculating, wherein the value comprises at least part of the transaction.