Component-Dependent Variable Combination of Financial Securities
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Solution Overview
Problem
Traditional investing requires investors to assume risks associated with growth or income, with securities inherently carrying risks that may not align with individual investment goals, and existing technologies have not effectively separated cash flows from investment securities.
Innovation Solution
The creation of component-dependent variable combinations of income and equity units, allowing investors to separately trade and recombine equity and income components based on their preference for capital appreciation or dividend income, using a system that allocates proceeds from unit sales to respective trusts and holds underlying reference assets.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If traditional securities are used, then investors receive both income and growth components together, but investors cannot align their investment goals with specific risk preferences
Solution Approach 1:
The patent segments the cash flows of underlying reference assets into distinct components: income components (dividends, interest) and growth components (capital appreciation). These segmented components are then bundled into separate tradable securities, allowing investors to choose securities that match their specific investment goals and risk preferences without the complexity of custom portfolio construction.
Solution Approach 2:
The patent extracts specific cash flow components (income or growth) from the underlying reference assets and creates separate securities that trade independently. This extraction allows investors to obtain pure exposure to the component they desire, eliminating the need to hold traditional securities that combine both components and cannot be easily adjusted to match individual risk preferences.
2Reliability
If investors assume additional risks in traditional investing to achieve growth or income, then return potential increases, but risk exposure becomes misaligned with investment goals
Solution Approach 1:
The patent applies local quality by creating securities with different risk profiles tailored to specific investment objectives. Income-focused securities provide stable dividend income with lower risk, while growth-focused securities provide capital appreciation potential with higher risk. Each security has locally optimized characteristics that match specific investor needs, eliminating the need to assume misaligned risks to achieve desired returns.
3Adaptability or versatility
If securities inherently carry fixed risks, then investors face unavoidable risk exposure, but investors need flexibility to adjust risk based on market conditions and personal preferences
Solution Approach 1:
The patent creates a dynamic system where investors can adjust their risk exposure by buying, selling, or rebalancing between income and growth securities based on market conditions and personal preferences. The separable component structure enables flexible reallocation without requiring complex derivative strategies or custom portfolio construction, allowing investors to adapt risk levels dynamically while maintaining simplicity.
Data Source
AI summary
Systems and methods for creating component-dependent variable combinations of different financial interests in a portfolio of stocks, a stock index or other financial assets based on component factors, such as a series of interim cash flows of the asset. Specifically, the present invention relates to systems and methods for creating securities comprising component-dependent variable combinations of securities in underlying reference assets following dividing such assets into income and equity components. In one aspect, the income component is an ordinary dividend component for a fixed time period or until a fixed dollar amount has been paid and the equity component is a capital component that can be traded separately.