Price earnings derivative financial product
View Patent ↗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 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 method of using a ratio comprising price and earnings to value a financial product based upon at least one equity, the method comprising:
selecting a ratio function comprising price and earnings for calculating a strike price to earnings ratio, the ratio function being associated with a set comprising at least one equity;
selecting a quantity, the quantity being associated with the set comprising at least one equity;
selecting a maturity price to earnings calculation technique associated with the set comprising the at least one equity;
calculating, using a programmed processor, a payoff using the ratio function, the maturity price to earnings calculation technique, and the quantity, wherein the calculating occurs after the selecting the quantity step; and
conducting a transaction, subsequent to the calculating, wherein the payoff comprises at least part of the transaction.
2. The method of claim 1 , wherein the ratio function comprises an empirically measured price to earnings ratio value of a set comprising at least one equity, wherein the empirically measured price to earnings ratio value is empirically measured subsequent to the selecting the quantity step.
3. The method of claim 1 , wherein the ratio function is a constant function, the constant function representing a strike price to earnings ratio.
4. The method of claim 1 , wherein the ratio function comprises at least one of a floor and a ceiling.
5. The method of claim 1 , further comprising repeating the calculating a payoff step and conducting a transaction step.
6. The method of claim 1 wherein the transaction is part of a swap.
7. The method of claim 1 , wherein the quantity comprises a notional value for the transaction.
8. The method of claim 1 , wherein the quantity comprises a notional number of equities.
9. The method of claim 8 , wherein the quantity further comprises a parameter selected from the group consisting of: a present earnings, a future earnings and a combination thereof.
10. The method of claim 1 , wherein the set comprising at least one equity is selected from the group consisting of: an index, a basket of stocks, a stock and a combination thereof.
11. The method 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, a swaption and a combination thereof.
12. A method of using a ratio comprising price and earnings to value a financial product based upon at least one equity, the method comprising:
selecting an algorithm for calculating a ratio comprising price and earnings on at least one future date and the ratio is a strike price to earnings ratio, the ratio being associated with a set comprising at least one equity;
selecting a quantity, the quantity being associated with the set comprising at least one equity;
selecting a maturity algorithm associated with the set comprising the at least one equity for calculating a maturity price to earning ratio;
calculating, using a programmed processor, a payoff using a ratio produced by the algorithm, the maturity price to earnings ratio, and the quantity, wherein the calculating occurs after the selecting the quantity step; and
conducting a transaction, subsequent to the calculating a payoff step, wherein the payoff comprises at least part of the transaction.
13. The method of claim 12 , wherein the algorithm comprises empirically measuring a price to earnings ratio value of a set comprising at least one equity, wherein the empirically measuring occurs subsequent to the selecting a quantity step.
14. The method of claim 12 , wherein the algorithm produces a single, predetermined value, the value comprising a strike price to earnings ratio.
15. The method of claim 12 , wherein the algorithm comprises at least one of a floor and a ceiling.
16. The method of claim 12 , further comprising repeating the calculating a payoff step and conducting a transaction step.
17. The method of claim 12 , wherein the transaction is part of a swap.
18. The method of claim 12 , wherein the quantity comprises a notional value for the transaction.
19. The method of claim 12 , wherein the quantity comprises a notional number of equities.
20. The method of claim 19 , wherein the quantity further comprises a parameter selected from the group consisting of: a present earnings, a future earnings and a combination thereof.
21. The method of claim 12 , wherein the set comprising at least one equity is selected from the group consisting of: an index, a basket of stocks, a stock, and a combination thereof.
22. The method of claim 12 , 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, a swaption, and a combination thereof.
23. The method of claim 1 , wherein the calculating a payoff step comprises calculating a product of the quantity and a difference between the strike price to earnings ratio and a maturity price to earnings ratio calculated by the maturity price to earnings calculation technique.
24. The method of claim 12 , wherein the calculating a payoff step comprises calculating a product of the quantity and a difference between the ratio produced by the algorithm and the maturity price to earnings ratio produced by the maturity algorithm.