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US 7,010,510 B1Granted
Variance reduction technique for large scale risk management
AssigneeOracle International Corporation
InventorHenry Schellhorn
Life of this patent
Estimating the term…
Abstract
A control variate Monte Carlo simulation for estimating the value of a portfolio of financial instruments is provided. The control variate uses a function dependent upon two state variables, the aggregate principal and the interest rate, to simulate the aggregate value of the portfolio.
Claims36
A method for financial estimation, the method comprising:
- (a) providing a portfolio of financial instruments on a database in a computing network, the instruments having a schedule of payment times;
- (b) generating a plurality of interest rate scenarios by Monte Carlo simulation using a stochastic term structure and storing the plurality of interest rate scenarios on computer readable medium;
- (c) calculating, for each financial instrument, a set of financial outcomes using a subset of the plurality of stored interest rate scenarios;
- (d) interpolating, from the sets of financial outcomes, a first function that estimates an aggregate value of the portfolio when sampled at the payment times with an aggregate principal of the portfolio and a first interest rate scenario;
- (e) providing a second function that estimates a value for a financial instrument from the portfolio when sampled at the payment times using a second interest rate scenario;
- (f) using an interest rate scenario from the plurality of stored interest rate scenarios, calculating a value of the second function for each financial instrument in the portfolio and a value of the first function to estimate, respectively, a value for the portfolio and an aggregate value for the portfolio;
- (g) forming a control variate based upon the estimated value of the portfolio, the estimated aggregated value of the portfolio, and an expected value of the aggregate value of the portfolio;
- and
- (h) managing the portfolio based on the control variate.
6 more elements
A method for financial estimation of a portfolio of financial instruments, the method comprising:
- (a) providing a first function giving an aggregate value for the portfolio;
- (b) providing a second function giving a value for a financial instrument within the portfolio;
- (c) using an interest rate scenario, calculating a value for the portfolio using the second function and the aggregate value for the portfolio using the first function;
- (d) forming a control variate based upon the value of the portfolio, the aggregate value for the portfolio, and an expected value of the aggregate value for the portfolio;
- and
- (e) estimating the value of the portfolio based on the control variate.
3 more elements
A computer program product that includes a computer-usable medium, the medium having stored thereon a sequence of instructions which, when executed by a processor, causes the processor to execute a process for financial estimation, said process comprising:
- (a) providing a portfolio of financial instruments having a schedule of payment times;
- (b) generating a plurality of interest rate scenarios by Monte Carlo simulation using a stochastic term structure;
- (c) calculating, for each financial instrument, a set of financial outcomes using a subset of interest rate scenarios;
- (d) interpolating, from the sets of financial outcomes, a first function that estimates the aggregate value of the portfolio when sampled at the payment times with an aggregate principal of the portfolio and a first interest rate scenario;
- (e) providing a second function that estimates a value for a financial instrument from the portfolio when sampled at the payment times using a second interest rate scenario;
- (f) using an interest rate scenario from the plurality of interest rate scenarios, calculating a value of the second function for each financial instrument in the portfolio and a value of the first function to estimate, respectively, a value for the portfolio and an aggregate value for the portfolio;
- (g) forming a control variate based upon the estimated value of the portfolio, the estimated aggregated value of the portfolio, and an expected value of the aggregate value of the portfolio;
- and
- (h) managing the portfolio based on the control variate.
6 more elements
A computer program product that includes a computer-usable medium, the medium having stored thereon a sequence of instructions which, when executed by a processor, causes the processor to execute a process for financial estimation of a portfolio of financial instruments, the process comprising:
- (a) providing a first function giving an aggregate value for the portfolio;
- (b) providing a second function giving a value for a financial instrument within the portfolio;
- (c) using an interest rate scenario, calculating a value for the portfolio using the second function and the aggregate value for the portfolio using the first function;
- (d) forming a control variate based upon the value of the portfolio, the aggregate value for the portfolio, and an expected value of the aggregate value for the portfolio;
- and
- (e) estimating the value of the portfolio based on the control variate.
3 more elements
A system for financial estimation, the system comprising:
- (a) means for providing a portfolio of financial instruments having a schedule of payment times;
- (b) means for generating a plurality of interest rate scenarios by Monte Carlo simulation using a stochastic term structure;
- (c) means for calculating, for each financial instrument, a set of financial outcomes using a subset of interest rate scenarios;
- (d) means for interpolating, from the sets of financial outcomes, a first function that estimates the aggregate value of the portfolio when sampled at the payment times with an aggregate principal of the portfolio and a first interest rate scenario;
- (e) means for providing a second function that estimates a value for a financial instrument from the portfolio when sampled at the payment times using a second interest rate scenario;
- (f) means for using an interest rate scenario from the plurality of interest rate scenarios, calculating a value of the second function for each financial instrument in the portfolio and a value of the first function to estimate, respectively, a value for the portfolio and an aggregate value for the portfolio;
- (g) means for forming a control variate based upon the estimated value of the portfolio, the estimated aggregated value of the portfolio, and an expected value of the aggregate value of the portfolio;
- and
- (h) means for managing the portfolio based on the control variate.
6 more elements
A system for financial estimation of a portfolio of financial instruments, the system comprising:
- (a) means for providing a first function giving an aggregate value for the portfolio;
- (b) means for providing a second function giving a value for a financial instrument within the portfolio;
- (c) means for using an interest rate scenario, calculating a value for the portfolio using the second function and the aggregate value for the portfolio using the first function;
- (d) means for forming a control variate based upon the value of the portfolio, the aggregate value for the portfolio, and an expected value of the aggregate value for the portfolio;
- and
- (e) means for estimating the value of the portfolio based on the control variate.
3 more elements
A computer implemented method for financial estimation, the method comprising:
- (a) providing a portfolio of financial instruments having a schedule of payment times;
- (b) generating a plurality of interest rate scenarios by Monte Carlo simulation using a stochastic term structure;
- (c) calculating, for each financial instrument, a set of financial outcomes using a subset of interest rate scenarios;
- (d) interpolating, from the sets of financial outcomes, a first function that estimates the aggregate value of the portfolio when sampled at the payment times with an aggregate principal of the portfolio and a first interest rate scenario;
- (e) providing a second function that estimates a value for a financial instrument from the portfolio when sampled at the payment times using a second interest rate scenario;
- (f) using an interest rate scenario from the plurality of interest rate scenarios, calculating a value of the second function for each financial instrument in the portfolio and a value of the first function to estimate, respectively, a value for the portfolio and an aggregate value for the portfolio;
- (g) forming a control variate based upon the estimated value of the portfolio, the estimated aggregated value of the portfolio, and an expected value of the aggregate value of the portfolio;
- and
- (h) estimating the value of the portfolio based on the control variate.
6 more elements
A computer implemented method for financial estimation of a portfolio of financial instruments, the method comprising:
- (a) providing a first function giving an aggregate value for the portfolio;
- (b) providing a second function giving a value for a financial instrument within the portfolio;
- (c) using an interest rate scenario, calculating a value for the portfolio using the second function and the aggregate value for the portfolio using the first function;
- (d) forming a control variate based upon the value of the portfolio, the aggregate value for the portfolio, and an expected value of the aggregate value for the portfolio;
- and
- (e) estimating the value of the portfolio based on the control variate.
3 more elements
Dependencies are inferred from the claim text.