Patent ID: 8510210

Claim:
A computer-implemented method of calculating an interest rate swap volatility index reflecting a measure of expected future interest rate swap volatility, the method comprising: with a processor in a trading platform: calculating with the processor the interest rate swap volatility index, where the interest rate swap volatility index is a swaption-implied measure of expected future interest rate swap volatility associated with at least one underlying interest rate swaption; wherein calculating the interest rate swap volatility index comprises the processor aggregating prices of at-the-money and out-of-the-money receiver and payer interest rate swaptions and the interest rate swap volatility index at time t is calculated according to an equation: IRS - VI n BP ⁡ ( t , T ) ≡ 1 T - t ⁢ 2 PVBP t ⁡ ( T 1 , … ⁢ , T n ) [ ∑ i : K i < R t ⁢ SWPN t R ⁡ ( K i , T ; T n ) ⁢ Δ ⁢ ⁢ K i + ∑ i : K i ≥ R t ⁢ SWPN t P ⁡ ( K i , T ; T n ) ⁢ Δ ⁢ ⁢ K i ] where SWPN t R (K i ,T;T n ) (resp., SWPN t P (K i ,T;T n )) is a price of a swaption receiver (resp., payer), struck at K i , expiring at T and with tenor extending up to time T n , and ΔK i =½(K i+1 −K i−1 ) for i≧1, ΔK 0 =(K 1 −K 0 ), ΔK M =(K M −K M−1 ), where K 0 and K M are lowest and highest available strike prices traded in a market, and M+1 is a total number of traded swaptions expiring at time T and with tenor extending up to time T n , where PVBP t (T 1 , . . . , T n ) is a price value of a basis point at time t of an interest rate swap starting at time T with fixed payment dates T 1 , . . . , T n , and which is an impact of a one basis point change in a swap rate on a value of a fixed leg of the interest rate swap, and where R t is the forward swap rate prevailing at time t; and displaying the interest rate swap volatility index associated with the underlying interest rate swaptions on a trading platform display device coupled with the trading platform.