US6021397A — Financial advisory system

Claim 1

Independent Claim 253 words

In an financial advisory system, a method of financial product selection comprising the steps of: generating return scenarios for each asset class of a plurality of asset classes based upon future scenarios of one or more economic factors, creating a mapping from each financial product of an available set of financial products onto one or more asset classes of the plurality of asset classes by determining exposures of the available set of financial products to each asset class of the plurality of asset classes; simulating return scenarios for one or more portfolios including combinations of financial products from the available set of financial products based upon the mapping; determining an optimal feasible portfolio comprising one or more financial products of the available set of financial products based upon the step of simulating return scenarios and taking into consideration expected contributions and expected withdrawals; and maximizing a mean-variance utility function of the form: ##EQU5## where for a given scenario, E(W T )is the expected value of wealth at a time T, Var(W T ) is the variance of wealth at time T, τ is a user's risk tolerance, ##EQU6## where, X i represents a recommended constant proportion of each net contribution that should be allocated to financial product i, C t represents a net contribution at time t, R ji represents expected returns for financial product i in year j, n is the number of financial products that are available for optimization, and g is a value of constrained assets for a given scenario.

Claim 2

Dependent Claim 253 words

In an financial advisory system, a method of financial product selection comprising the steps of: generating return scenarios for each asset class of a plurality of asset classes based upon future scenarios of one or more economic factors, creating a mapping from each financial product of an available set of financial products onto one or more asset classes of the plurality of asset classes by determining exposures of the available set of financial products to each asset class of the plurality of asset classes; simulating return scenarios for one or more portfolios including combinations of financial products from the available set of financial products based upon the mapping; determining an optimal feasible portfolio comprising one or more financial products of the available set of financial products based upon the step of simulating return scenarios and taking into consideration expected contributions and expected withdrawals; and maximizing a mean-variance utility function of the form: ##EQU5## where for a given scenario, E(W T )is the expected value of wealth at a time T, Var(W T ) is the variance of wealth at time T, τ is a user's risk tolerance, ##EQU6## where, X i represents a recommended constant proportion of each net contribution that should be allocated to financial product i, C t represents a net contribution at time t, R ji represents expected returns for financial product i in year j, n is the number of financial products that are available for optimization, and g is a value of constrained assets for a given scenario.

Claim 3

Dependent Claim 65 words

The method of claim 1, wherein the step of creating a mapping of each financial product of an available set of financial products onto one or more asset classes of a plurality of asset classes further includes the step of performing returns-based style analysis on the financial product to measure how returns associated with the financial product behave relative to the plurality of asset classes.

Claim 4

Dependent Claim 120 words

The method of claim 2, wherein returns at a time, t, for a particular financial product is represented by the following equation: r.sub.ft =α.sub.ft +S.sub.f1 r.sub.1t +S.sub.f2 r.sub.2t +. . . +S.sub.fn r.sub.nt +ε.sub.t where, α ft represents a selection variance at time t, S fi is the style coefficient for factor n of financial product f, r ft is the return for financial product f at time t, r nt is the return for factor n at time t, and ε t is a residual at time t, and wherein the step of performing returns-based style analysis further includes the step of determining future values of α t based upon one or more characteristics of the particular financial product.

Claim 5

Dependent Claim 22 words

The method of claim 3, wherein the one or more characteristics comprise an expense ratio, a size, and a fund turnover ratio.

Claim 6

Dependent Claim 44 words

The method of claim 1, wherein the plurality of asset classes includes a core set of asset classes and a set of factor asset classes, and wherein the method further includes the step of conditioning the factor asset classes upon the core asset classes.

Claim 7

Dependent Claim 136 words

The method of claim 5, wherein the step of conditioning the factor asset classes upon the core asset classes employs the following equation: r.sub.it =α.sub.i +β.sub.1i ST.sub.-- Bonds.sub.t +β.sub.2i LT.sub.-- Bonds.sub.t +β.sub.3i US.sub.-- Stocks.sub.t +ε.sub.t where, r it represents the return for a factor, i, at time t, β ji represents the sensitivity of the factor i to core asset class j, ST -- Bonds t represents the returns estimated for short-term U.S. government bonds at time t, L7 -- Bonds t represents the returns estimated for long-term U.S. government bonds at time t., U.S. -- Stocks t represents the returns estimated for U.S. stocks at time t, α i is a constant representing the average returns of factor asset class i relative to core asset class exposures, and ε t is a residual random variable.

Claim 8

Dependent Claim 28 words

The method of claim 6, further including the step of imposing macroconsistency upon the factor asset class returns by estimating α i relative to a known efficient portfolio.

Claim 9

Dependent Claim 41 words

The method of claim 6, wherein the step of imposing macroconsistency upon the factor asset class returns includes the step of calibrating α i to be consistent with observed market weightings of the factor asset classes associated with a Market Portfolio.

Claim 10

Dependent Claim 29 words

The method of claim 1, wherein the step of determining an optimal feasible portfolio takes into consideration one or more constraints on financial product holdings imposed by the user.

Claim 11

Dependent Claim 30 words

The method of claim 1, further comprising the steps of: evaluating the optimal feasible portfolio against a plan; and alerting the user if one or more predetermined conditions are satisfied.

Claim 12

Dependent Claim 18 words

The method of claim 10, wherein the plan includes a probability of reaching one or more financial goals.

Claim 13

Dependent Claim 17 words

The method of claim 10, wherein the plan includes a risk associated with the optimal feasible portfolio.

Claim 14

Dependent Claim 36 words

The method of claim 1, further including the step of receiving an indication of the user's risk tolerance, and wherein the step of determining an optimal feasible portfolio is further based upon the user's risk tolerance.

Claim 15

Dependent Claim 19 words

The method of claim 1, further comprising the step of receiving one or more input decisions from the user.

Claim 16

Dependent Claim 18 words

The method of claim 14, wherein the one or more input decisions include a level of investment risk.

Claim 17

Dependent Claim 20 words

The method of claim 14, wherein the one or more input decisions include an indication of the user's savings rate.

Claim 18

Dependent Claim 16 words

The method of claim 14, wherein the one or more input decisions include a time horizon.

Claim 19

Dependent Claim 267 words

A machine-readable medium having stored thereon data representing sequences of instructions, the sequences of instructions which, when executed by a processor, cause the processor to perform the steps of: generating return scenarios for each asset class of a plurality of asset classes based upon future scenarios of one or more economic factors; creating a mapping from each financial product of an available set of financial products onto one or more asset classes of the plurality of asset classes by determining exposures of the available set of financial products to each asset class of the plurality of asset classes; simulating return scenarios for one or more portfolios including combinations of financial products from the available set of financial products based upon the mapping; determining an optimal feasible portfolio comprising one or more financial products of the available set of financial products based upon the step of simulating return scenarios and taking into consideration expected contributions and expected withdrawals; and maximizing a mean-variance utility function of the form: ##EQU7## where for a given scenario, E(W T ) is the expected value of wealth at a time T, Var(W T )is the variance of wealth at time T, τ is a user's risk tolerance, ##EQU8## where, X i represents a recommended constant proportion of each net contribution that should be allocated to financial product i, C t represents a net contribution at time t, R ji represents expected returns for financial product i in year j, n is the number of financial products that are available for optimization, and g is a value of constrained assets for a given scenario.

Claim 20

Dependent Claim 267 words

A machine-readable medium having stored thereon data representing sequences of instructions, the sequences of instructions which, when executed by a processor, cause the processor to perform the steps of: generating return scenarios for each asset class of a plurality of asset classes based upon future scenarios of one or more economic factors; creating a mapping from each financial product of an available set of financial products onto one or more asset classes of the plurality of asset classes by determining exposures of the available set of financial products to each asset class of the plurality of asset classes; simulating return scenarios for one or more portfolios including combinations of financial products from the available set of financial products based upon the mapping; determining an optimal feasible portfolio comprising one or more financial products of the available set of financial products based upon the step of simulating return scenarios and taking into consideration expected contributions and expected withdrawals; and maximizing a mean-variance utility function of the form: ##EQU7## where for a given scenario, E(W T ) is the expected value of wealth at a time T, Var(W T )is the variance of wealth at time T, τ is a user's risk tolerance, ##EQU8## where, X i represents a recommended constant proportion of each net contribution that should be allocated to financial product i, C t represents a net contribution at time t, R ji represents expected returns for financial product i in year j, n is the number of financial products that are available for optimization, and g is a value of constrained assets for a given scenario.

Claim 21

Dependent Claim 66 words

The machine-readable medium of claim 18, wherein the step of creating a mapping of each financial product of an available set of financial products onto one or more asset classes of a plurality of asset classes further includes the step of performing returns-based style analysis on the financial product to measure how returns associated with the financial product behave relative to the plurality of asset classes.

Claim 22

Dependent Claim 30 words

The machine-readable medium of claim 18, wherein the step of determining an optimal feasible portfolio takes into consideration one or more constraints on financial product holdings imposed by the user.

Claim 23

Dependent Claim 45 words

The machine-readable medium of claim 18, further including sequences of instructions which when executed by the processor cause the processor to perform the steps of: evaluating the optimal feasible portfolio against a plan; and alerting the user if one or more predetermined conditions are satisfied.

Claim 24

Dependent Claim 19 words

The machine-readable medium of claim 21, wherein the plan includes a probability of reaching one or more financial goals.

Claim 25

Dependent Claim 18 words

The machine-readable medium of claim 21, wherein the plan includes a risk associated with the optimal feasible portfolio.

Claim 26

Dependent Claim 51 words

The machine-readable medium of claim 18, further including sequences of instructions which when executed by the processor cause the processor to perform the step of receiving an indication of the user's risk tolerance, and wherein the step of determining an optimal feasible portfolio is further based upon the user's risk tolerance.

Annuity Stage	Window Opens	Payment Deadline	Surcharge Period Until	Estimated Fee	Status
3.5 Years (Year 4)	2003-01-31	2003-08-02	2004-02-01	$2000.00	Window Closed / Lapsed
7.5 Years (Year 8)	2007-01-31	2007-08-02	2008-02-01	$3760.00	Window Closed / Lapsed
11.5 Years (Year 12)	2011-01-31	2011-08-02	2012-02-01	$7700.00	Window Closed / Lapsed

Financial advisory system

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