USER-INTERACTIVE FINANCIAL VEHICLE
PERFORMANCE PREDICTION, TRADING
AND TRAINING SYSTEM AND METHODS
RELATED U.S. APPLICATION DATA 5
This non-provisional application claims priority from a provisional application, Ser. No. 60/236,259, filed on Sep. 28, 2000, which is incorporated herein by reference.
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BACKGROUND OF THE INVENTION
Along with the surging popularity of the Internet, there has been a corresponding surge in the usage of the Internet by individuals for online investment education, research and 15 transactions. As noted in the popular media, millions of individuals, via the Internet, conduct online investment transactions, most of which involve buying and selling of stocks. According to the Wall Street Journal, for example, 3.7 million U.S. households conducted at least one online investment 20 transaction for the six months ended February, 2001, which was actually an 18% decrease from the 4.5 million U.S. households which conducted at least one online investment transaction for the six months ended August, 2000. "Online Traders Disappear, But Perhaps Not For Good", The Wall 25 Street Journal, Mar. 28, 2001.
While online stock trading has proliferated, online options transactions have only increased incrementally. The primary reason for this appears to be a lack of understanding among 3Q investors about what options are and how they can become a meaningful part of one's investment strategy.
In broad terms, options allow an investor with a hunch about the direction of a security's price to try to profit from that hunch without having to lay out the full amount it would 35 cost to purchase the security. For example, a call option gives its holder the right but not the obligation to purchase a security (e.g., stock) at a preselected price (i.e., the "strike price") by a preselected date. An investor typically buys a call option if he believes that the value of the security will increase by the 4Q preselected date. By contrast, a put option gives its holder the right but not the obligation to sell a security at a preselected price by a preselected date. An investor typically buys a put option if he believes that the value of the security will decrease by the preselected date. 45
A call option is "in the money" when the strike price is below the price of the security. For example, a call option with a strike price of $50 per share for XYZ Company' s stock is in the money when XYZ Company's stock price is trading at $58 per share. A put option is "in the money" when the strike 50 price is above the price of the security. For example, a put option with a strike price of $56 per share for XYZ Company's stock is in the money when XYZ Company's stock price is trading at $49 per share.
Generally, a binary option, also known as all-or-nothing 55 option, bet option, digital option or lottery option, is a European option with a fixed, predetermined payoff if the underlying instrument or index is at or beyond the strike price at expiration. The value of the payoff is not affected by the magnitude of the difference between the underlying instru- 60 ment or index and the strike price. The strike price is the price at which the options contract stipulates the underlying instrument or index will be bought or sold. A European style option is one which can only be exercised on its expiration date. By contrast, an American style option is an option which the 65 holder may exercise any time up to and including the option's expiration date.
There are two types of binary options, a cash-or-nothing and asset-or-nothing options. A holder of a cash-or-nothing binary option receives a fixed payoff if the option expires in the money or nothing if the option expires out of the money. A holder of an asset-or-nothing binary option receives the underlying asset if the option expires in the money or nothing if the option expires out of the money.
A range accumulation option or warrant is a series of binary options with each option covering a short period. The payoff of the range accumulation option is the sum of the payoffs of the component binary options. The component options, in turn, payoff when the underlying price or rate falls within a designated range. Range accumulation options may be stand-alone instruments, but they are frequently embedded in notes to create Index Range Notes or LIBOR Range Notes.
An Index Range Note is a note with a coupon determined largely or entirely by an embedded range accumulation option. Equity indexes, currency exchange rates and interest rates are among the underlying indexes, prices or rates that can determine the payoff. LIBOR (i.e., London Inter-Bank Offered Rate) Range Notes are the most common variety of Index Range Notes.
As the above descriptions relating to options demonstrates, especially the descriptions relating to binary options and range accumulation options, educating an investor about options is no easy task. This difficulty is also faced by financial institutions, such as the assignee of the present patent application, as they try to educate their employees concerning options and to determine who, among their employees, may have the skills necessary to make good options transactions.
What is desired, therefore, is an interactive technological system and method that facilitates learning about and trading options by allowing a user to predict performance of a financial vehicle and that also helps a financial institution to objectively determine which employees may have the skills necessary to make good options transactions.
SUMMARY OF THE INVENTION
The objects of the invention are achieved by methods and system for allowing a user, through a computer in telecommunication link with a system having access to financial and market data, to predict the performance of a financial vehicle and thereby provide training for trading options or evaluating predictions. One method includes providing a user interface, via the computer, which allows the user to specify a financial vehicle; displaying, via the user interface, historical performance data for the financial vehicle specified by the user; displaying, via the user interface, projected performance data for the financial vehicle; receiving from the user, via the user interface, performance prediction for the financial vehicle for a time period; receiving from the user, via the user interface, amount of money to leverage relating to the performance prediction for the financial vehicle for the time period; storing the performance prediction for the financial vehicle and the amount of money leveraged; calculating payoff amount based on the performance prediction for the financial vehicle and the amount of money leveraged; and displaying, via the user interface, the calculated payoff amount.
BRIEF DESCRIPTION OF THE DRAWINGS
FIG. 1 shows an embodiment of a user-interactive financial vehicle performance prediction system of the present invention;
FIG. 2 shows an operation flowchart of the user-interactive financial vehicle performance prediction system of FIG. 1; and
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FIG. 3 shows an embodiment of a user interface provided by the system of FIG. 1.
DETAILED DESCRIPTION OF THE PREFERRED
EMBODIMENT 5
FIG. 1 shows an embodiment of a user-interactive financial vehicle performance prediction system 10 of the present invention. The system 10 is in telecommunication link 22 with a first user computer 20 and in telecommunication link io 32 with a second user computer 30. The telecommunication links 22, 32 may be over a local area network ("LAN") or an Internet connection using a public switched telephone network or a cable network. Connections may also be provided by dedicated data lines, cellular, Personal Communication 15 Systems ("PCS"), microwave, satellite networks, or other data transmission means known in the art. While FIG. 1 shows the first and second user computers 20, 30 separately linked to the system 10, it should be apparent to one of ordinary skill in the art that if the first and second user com- 20 puters are part of the same LAN or the like, then both user computers can be linked to the system 10 by a common telecommunication link. It should also be apparent to one of ordinary skill in the art that while FIG. 1 shows two user computers linked to the system 10 of the present invention, 25 the system is designed to work with one or more user computers.
The user-interactive financial vehicle performance prediction system 10 includes a system computer 12. A storage unit, such as a database 40, which stores financial and market data 30 is electronically connected to the system 10. As will be described in greater detail below, software codes 14 executing on a microprocessor (not shown) of the system computer 12 provide a user interface to the user computers 20, 30 through which users can select a financial vehicle. As used herein, the 35 term "financial vehicle" includes, but is not limited to, stocks, foreign exchange rates, interest rates, market indices, government obligation rates, and corporate bond rates. Providing a user interface to a user computer, which user interface has choices of financial vehicles for selection by a user is shown 40 at step 100 of FIG. 2.
FIG. 2 is a flowchart showing the operation of the userinteractive financial vehicle performance prediction system 10 of FIG. 1. At step 110, the system receives user selection of a financial vehicle. For example, the system 10 may receive 45 the selection of the Dow Jones Industrial Average ("DJIA") index as the financial vehicle from user l's computer 20 over the telecommunication link 22. At step 120, the system causes to be displayed on the user interface historical performance data for the financial vehicle. The time period spanning the 50 historical performance data is preferably user selectable via the user interface. For example, after selecting the DJIA as the financial vehicle, user 1 may select to view the performance of the DJIA over the last 12 months.
At step 130, the system receives user selection of perfor- 55 mance prediction for the financial vehicle for a time period. Preferably, the time period for the performance prediction is user selectable via the user interface. Also, the performance prediction for the financial vehicle may be a range of values, rather than one value. Using the example above, the system 10 60 may receive from user l's computer 20 the prediction that on the third Friday of July, 2001, the DJIA will be in the range of 10900 and 11000. By contrast, the system 10 may receive from user 2's computer 30 the prediction that at the end of December, 2001, the DJIA will be trading at 11300. 65
At step 140, the system receives user selection of amount of money to leverage relating to the performance prediction for
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the financial vehicle. Returning to the DJIA example above, user 1 may choose to invest $1000 for his prediction that on the third Friday of July, 2001, the DJIA will be in the range of 10900 and 11000. Both the performance prediction and the amount of money leveraged for the financial vehicle received from the user is caused to be stored by the system. This is shown as step 150. At step 160, the system calculates a payoff amount based on the performance prediction and the amount of money leveraged for the financial vehicle. For the DJIA example used above, the system 10 may review the options contracts expiring in July, 2001 to set a payoff amount for user l's $1000 "bet" that the DJIA will end in the range of 10900 and 11000 on the third Friday of July, 2001. This calculated payoff amount is displayed on the user interface at step 170.
While FIG. 2 shows a user predicting the performance of a financial vehicle for a time period, it should be apparent to one of ordinary skill in the art that the same user may predict the performance of a financial vehicle for a plurality of time periods. Also, it should be apparent to one of ordinary skill in the art that the same user may predict the performance of a plurality of financial vehicles.
Referring to FIG. 3, there is shown one embodiment of the user interface provided by the user-interactive financial vehicle performance prediction system 10 of FIG. 1. The user interface 200 has selectable tabs 210, 212, 214, with each tab corresponding to a category of a financial vehicle. In the embodiment of FIG. 3, tab 210 corresponds to stocks, tab 212 corresponds to market indexes, and tab 214 corresponds to foreign exchange rates/commodities. While FIG. 3 shows three such tabs, it should be apparent to one of ordinary skill in the art that additional tabs corresponding to other categories of financial vehicles may also be included in the user interface 200. Also, the user interface may only have one tab is so desired, without departing from the scope or objects of the present invention.
A pull-down interactive element 220 is shown in FIG. 3. In the exemplary embodiment, this pull-down interactive element 220 allows the user to select a specific financial vehicle from the selected category of financial vehicles. FIG. 3 shows as an example the selection by the user of the foreign exchange/commodities tab 214, and within this category of financial vehicles, the selection of the exchange rate of Japanese yen to the United States dollar. It should be apparent to one of ordinary skill in the art that while the embodiment of FIG. 3 shows the use of tabs and pull-down interactive element, other ways for a user to select a specific financial vehicle can be utilized without departing from the scope or objects of the invention.
The user interface 200 also includes a first window 230 which displays historical performance data for the financial vehicle selected by the user, as well as projected performance data for the financial vehicle. The vertical axis of the first window shows the values for the selected financial vehicle. The horizontal axis of the first window serves as the time line. There is shown a line separator 232 within the first window 230, which separates the historical performance data (left of the line 232) from the projectedperformance data (right of the line 232). In the Japanese yen-U.S. dollar exchange rate example shown in FIG. 3, the preceding one-year historical performance data is shown. Note that the time period spanning the historical performance data may be user selected.
The projected performance data for the financial vehicle is displayed as a distribution curve in the user interface 200. This distribution curve may be derived from, for example, call and put options contracts for the financial vehicle, projections of members of the financial community studying the financial vehicle, mathematical formulation based on the historical
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