Claims Analysis
Total Claims: 10
Claim 1
Independent Claim
169 words
A computer-based method for determining an optimal replicating portfolio for a given target portfolio of market instruments, the method comprising the steps of: (a) defining the target portfolio; (b) defining a set of available market instruments from which the replicating portfolio may be constructed; (c) defining a set of future scenarios, wherein each member of the set associates a future value with a market parameter; (d) defining a horizon date and a minimum required result attainable from the replicating portfolio at the horizon date; (e) calculating a trade-off between risk and expected profit risk/reward parameter for an arbitrary replicating portfolio; (f) calculating a maximum risk-adjusted result using the set of future scenarios and the risk/reward parameter, wherein the maximum risk-adjusted result corresponds to a marginal cost of risk that is equivalent to a marginal benefit to be obtained from assuming that risk; and (g) generating a set of transactions required to create a replicating portfolio from the set of available market instruments that will achieve the maximum risk-adjusted result.
Claim 2
Dependent Claim
33 words
The method according to claim 1, further comprising the step of computing a risk premium caused by an inability to determine a replicating portfolio that is a perfect replication of the target portfolio.
Claim 3
Dependent Claim
37 words
The method according to claim 1, further comprising the step of computing a price for the replicating portfolio by discounting a future price of the replicating portfolio according to a current price of a known market instrument.
Claim 4
Dependent Claim
38 words
The method according to claim 3, wherein said step of computing a price for the replicating portfolio further comprises calculating a state price vector and applying the state price vector to the future price of the replicating portfolio.
Claim 5
Dependent Claim
34 words
The method according to claim 1, further comprising the step of executing the set of transactions to create a replicating portfolio from the set of available market instruments to achieve the maximum risk-adjusted result.
Claim 6
Dependent Claim
156 words
A computer-based apparatus for generating an optimal replicating portfolio for a given target portfolio of market instruments, the apparatus comprising: (a) an input module to accept information including a target portfolio definition, a set of future scenarios, a set of available market instruments, and a minimum result to be achieved; (b) an optimization module to calculate an optimal replicating portfolio associated with the target portfolio, the set of future scenarios, and the minimum result to be achieved, wherein the optimal replicating portfolio represents a set of market instruments for which a marginal cost of risk is equivalent to a marginal result to be obtained from assuming that risk; (c) a portfolio replication module to generate a set of transactions that will create the optimal replicating portfolio from a subset of the set of available market instruments; and (d) an output module to provide a user of said apparatus with information relating to the optimal replicating portfolio.
Claim 7
Dependent Claim
30 words
The apparatus of claim 6, further comprising a price calculator programmed to compute a current price for a financial instrument consistent with a current price of a known market portfolio.
Claim 8
Dependent Claim
23 words
The apparatus of claim 7, wherein said price calculator computes a state price vector for discounting the future price of the financial instrument.
Claim 9
Dependent Claim
34 words
The apparatus of claim 6, wherein said optimization module calculates a risk/reward parameter representing a trade-off between the minimum result to be achieved and a degree of risk required to achieve that minimum result.
Claim 10
Dependent Claim
14 words
The apparatus of claim 6, wherein said input module comprises a real-time data feed.