Apparatuses, methods and systems for a computationally efficient volatility index platform
The disclosed embodiments facilitate efficient calculation, determination, generation, management, analysis and/or communications relating to volatility indexes used to measure volatility of a market parameter, such as interest rates. More particularly, the disclosed embodiments relate to a type of futures contract whose underlier is a strip of options contracts whose underlier is another futures contract. Referred to as a “Premium over Parity” (“POP”) futures contract, the underlying strip of options contracts are characterized by strike prices defined in terms of a relationship with the market price of the options contracts valued at the settlement/expiration of the POP futures contract, e.g. +/−1, 2, 3, and 4 bp from the options contract value at expiration. This POP futures contract is then used as a single input to a volatility computation which enables rapid computation thereof.
1. A system comprising:
a processor and a memory coupled therewith;
first logic stored in the memory and configured to be executed by the processor to cause the processor to determine a type of annualized forward volatility metric of a selected characteristic of a financial market to be generated;
second logic stored in the memory and configured to be executed by the processor to cause the processor to generate, a financial instrument, characterized by an expiration and a definition of a first underlying asset to be both determined and physically delivered upon the expiration, for trading by selecting a currently available futures contract characterized by a price and having a second underlying asset whose value is characterized by the selected characteristic, the price of the selected futures contract being indicative of market expectations of the second underlying asset's future value, wherein the definition specifies a set of options contracts as the first underlying asset, each having the selected futures contract as an underlier thereof, each of the set of options contract being characterized by a different strike price, relative to a price of the selected futures contract, to be determined upon the expiration of the generated financial instrument, wherein the strike price of each of the set of options contracts differs from price of the selected futures contract determined upon the expiration of the generated financial instrument by an interval;
third logic stored in the memory and configured to be executed by the processor to cause the processor to introduce the generated financial instrument into an electronic financial instrument exchange market via an electronic exchange computer system coupled with the processor where upon it is automatically listed for trading; and
fourth logic stored in the memory and configured to be executed by the processor to cause the processor to determine, subsequent to the introduction of the generated financial instrument, from the electronic exchange computer system, a current price of the introduced generated financial instrument based on prior trading thereof and generate an annualized forward volatility metric (“VolPOP”) for an applicable time period (“t”) via a calculation of:
VolPOP
t
=
100
×
2
T
×
F
t
2
×
I
×
POP
t
Where:
T is time to expiry, in years, of the set of options contracts from the expiration of the introduced generated financial instrument;
t is the time or date for which this calculation is applicable;
F t is the price of the selected futures contract;
I is the interval between strike prices of each of the set of options contracts; and
POP t is the current price of the introduced generated financial instrument;
wherein the fourth logic is further configured to cause the processor to output the generated annualized forward volatility metric;
the system further comprising:
fifth logic stored in the memory and configured to be executed by the processor to cause the processor to generate at least one volatility index financial instrument having a value that is determined from the generated annualized forward volatility metric, wherein upon completion of the generation of the at least one volatility index financial instrument, the at least one generated volatility index financial instrument is introduced into a financial instrument exchange market via the electronic exchange computer system where it is automatically listed for trading, the at least one volatility index financial instrument having at least one parameter corresponding to the generated annualized forward volatility metric.
2. The system of claim 1 , wherein the type of annualized forward volatility metric to be generated comprises one of interest rate volatility, stock market volatility, or volatility of a price of a particular commodity.
3. The system of claim 1 , wherein the selected futures contract is one of a S&P 500 futures contract, a Nasdaq 100 futures contract, a Corn futures contract, a gold futures contract, a US treasury futures contract.
4. The system of claim 1 , wherein the price range and price interval are specified by a risk management system based on an assessment of volatility of the price of the selected futures contract.
5. The system of claim 1 , wherein each of the options contracts of the set of options contracts comprises an identical expiration subsequent to the expiration of the generated financial instrument.
6. The system of claim 1 , wherein the interval is a fixed value.
7. The system of claim 1 , wherein the set of options contracts comprises a number of options contracts, the number of options contracts in the set and the interval defining a range of strike prices relative to the price of the selected futures contract determined at the expiration of the generated financial instrument.
8. The system of claim 1 , wherein a subset of the set of options contracts are characterized by strike prices above the price of the selected futures contract determined at the expiration of the generated financial instrument, a remaining subset of the set of options contracts being characterized by strike prices below the price of the selected futures contract determined at the expiration of the generated financial instrument.
9. The system of claim 8 , wherein the subset and remaining subset comprise the same number of options contracts.
10. The system of claim 1 , wherein the fourth logic is further configured to cause the processor to periodically determine the current price of the introduced generated financial instrument based on prior trading thereof and generate the annualized forward volatility metric (“VolPOP”) is periodically performed for a subsequent applicable time period (“t”).
11. The system of claim 1 further comprising sixth logic stored in the memory and configured to be executed by the processor to cause the processor to, upon the expiration of the introduced generated financial instrument, determine a set of deliverable options contracts which meet the definition and delivering the deliverable set of options contracts.
12. The system of claim 1 , wherein the current price of the introduced generated financial instrument is indicative of an expectation of the prices of each of the set of options contracts.
13. The system of claim 1 , wherein the current price of the introduced generated financial instrument (POP t ) may be one of a bid price (VolPOP t BID ), ask price (VolPOP t ASK ), an average of the bid and ask prices (VolPOP t MID ) or a combination thereof.