Systems and methods are disclosed for processing binary options (also
referred to as digital options) in existing clearing systems, such as
futures clearing systems. The binary option is treated, or processed,
similar to standard options on a non-tradeable cash-settled underlying
futures contract. A hypothetical instrument, referred to as a book
instrument is created to facilitate clearing of the binary option. The
book instrument has an expiration date after the expiration of the binary
option, such as the day after the expiration of the binary option. For
each binary option that expires in the money, a transaction is created
for the book instrument future. The underlying book future has an
assigned price that is a fixed amount less that the final price for the
underlying statistical or actual value of the binary option at
expiration. Transactions are loaded in the clearing system and processed
and all positions are liquidated. Options exercise and assignment
processing is performed in the clearing system as well as an associated
clearing firm bookkeeping system.