Volatility Expiration Index Platform for Short-Term Volatility

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Solution Overview

Problem

Traditional volatility measurement tools, such as the Chicago Board Options Exchange's VIX, have limitations in accurately capturing short-term volatility and providing real-time correlation to implied volatility, which restricts investors' ability to benefit from short-term volatility movements.

Innovation Solution

The Volatility Expiration Index Platform (VEIP) extends the measurement period of volatility, calculates volatility expiration indexes for specified sub-periods, and generates financial instruments based on these indexes, allowing for real-time pricing and increased correlation with implied volatility, enabling investors to capitalize on short-term volatility.

Engineering Contradictions & Design Principles

VSEngineering Contradiction Analysis

1Measurement precision

If traditional volatility measurement tools (VIX) are used, then volatility measurement is provided for a fixed 30-day period, but the ability to capture short-term volatility and provide real-time correlation is limited

Engineering Contradiction:

Improvevolatility measurement accuracyVSAvoidshort-term volatility capture capability

Core Design Contradiction:

Measurement precisionVSAdaptability or versatility

Solution Approach 1:

The patent segments the traditional 30-day volatility measurement into multiple shorter sub-periods (e.g., weekly, daily, or intraday periods). By dividing the measurement window, the system can capture short-term volatility movements while maintaining overall volatility assessment, thus resolving the contradiction between measurement precision and adaptability to different time horizons.

Inventive Principle:

Principle #1Segmentation

Solution Approach 2:

The patent implements dynamic volatility measurement that adjusts to real-time market conditions and implied volatility changes. Rather than a fixed 30-day window, the system dynamically recalculates volatility metrics across multiple time periods, enabling real-time correlation with implied volatility and capturing short-term movements while maintaining measurement accuracy.

Inventive Principle:

Principle #15Dynamics

2Adaptability or versatility

If volatility measurement is extended to multiple sub-periods, then short-term volatility capture improves, but system complexity increases

Engineering Contradiction:

Improveshort-term volatility capture capabilityVSAvoidcalculation system complexity

Core Design Contradiction:

Adaptability or versatilityVSDevice complexity

Solution Approach 1:

The patent creates a multi-functional volatility measurement platform that can calculate volatility across multiple time periods using a unified framework. The same core calculation engine handles different sub-periods (daily, weekly, monthly) and different volatility types (realized, implied, forward), reducing overall system complexity despite the extended measurement capability.

Inventive Principle:

Principle #6Universality (Multi-functionality)

Solution Approach 2:

The patent introduces intermediate calculation layers that bridge raw market data and final volatility metrics across multiple sub-periods. These intermediary computational steps organize the complexity by breaking down multi-period calculations into manageable stages, allowing short-term volatility capture without overwhelming system complexity.

Inventive Principle:

Principle #24Intermediary (Mediator)

3Reliability

If real-time pricing of volatility products is implemented, then correlation with implied volatility increases, but computational requirements and system resources increase

Engineering Contradiction:

Improvecorrelation with implied volatilityVSAvoidcomputational resource consumption

Core Design Contradiction:

ReliabilityVSUse of energy by moving object

Solution Approach 1:

The patent performs preliminary calculations of volatility metrics during off-peak periods or using pre-computed implied volatility surfaces. By preparing volatility data in advance and caching intermediate results, the system can provide real-time pricing with high correlation to implied volatility without excessive computational resource consumption during active trading periods.

Inventive Principle:

Principle #10Preliminary action

Solution Approach 2:

The patent implements efficient memory management where computational results from previous time periods are discarded when no longer needed and recovered/recycled for new calculations. This approach reduces memory footprint and computational overhead while maintaining real-time pricing capability and high correlation with current implied volatility levels.

Inventive Principle:

Principle #34Discarding and recovering

Data Source

PatentUS10026128B2Apparatuses, methods and systems for a volatility expiration index platform

Publication Date: 2018.07.17 NYSE GROUP INC

AI summary

The APPARATUSES, METHODS AND SYSTEMS FOR A VOLATILITY EXPIRATION INDEX PLATFORM (“VEIP”) transforms user and market data inputs via VEIP components into Vol Ex Index publication and Vol Ex Index instrument communications outputs. A current reference security price may be determined for a reference security. A plurality of option strike prices may be derived from the current reference security price. Implied volatility and delta may be determined for options associated with each derived option strike price and used to calculate a delta-weighted implied volatility for each derived option strike price. A weighting for each derived option strike price may be determined and used along with the delta-weighted implied volatilities to calculate a volatility expiration index value for the reference security. Using the volatility expiration index value, a volatility expiration index financial instrument may be generated and introduced into a financial instrument exchange market.