Pricing module for financial advisory system

Claim 2

In a computer system, a method for pricing equity securities and fixed-income securities having a no arbitrage constraint, the method comprising: determining a fixed-income security pricing based on an inflation value, a real rate value and a term structure parameter; determining equity security pricing based on the inflation value, the real rate value, the term structure risk parameter, a dividend growth value, and an equity correlation parameter; and generating pricing data corresponding to the fixed-income security pricing and the equity security pricing.

Claim 3

The method of claim 1, wherein the fixed-income securities comprise: one or more short term-bonds; and one or more long-term bonds.

Claim 4

The method of claim 1, wherein the equity securities comprise one or more stocks, mutual funds, warrants, stock options, or derivative equity securities.

Claim 5

The method of claim 1 further comprising receiving the inflation value.

Claim 6

The method of claim 1 further comprising receiving the real rate value.

Claim 7

The method of claim 1 further comprising the step of receiving the term structure risk parameter.

Claim 8

The method of claim 1 further comprising the step of receiving the dividend growth value.

Claim 9

The method of claim 1 further comprising the step of receiving the equity correlation parameter.

Claim 10

The method of claim 1, wherein the term structure risk parameter and the equity correlation parameter are determined such that when determining fixed-income security pricing and determining equity security pricing are performed for one or more chosen historical times that the pricing approximates observed fixed-income security pricing and observed equity security pricing for the chosen historical times.

Claim 11

The method of claim 1, wherein the inflation value is determined as a heteroskedastic stochastic process.

Claim 12

The method of claim 10, wherein the inflation value at time t+1 (π t+1 ) is determined according to: ##EQU18## where μ.sub.π is a constant determined based on an unconditional mean for observed inflation over a period of time, ρ.sub.π is a first-order autocorrelation for the observed inflation over the period of time, π t is an inflation value for time t, σ'.sub.π is selected such that a standard deviation of a plurality of predicted inflation values corresponding to the period of time is approximately equal to a standard deviation of the observed inflation for the period of time, and ε t+1 .sup.π is a value chosen by a standard normal random deviate function.

Claim 13

The method of claim 1, wherein the real rate of interest value is determined as a heteroskedastic stochastic process.

Claim 14

The method of claim 12, wherein the real rate value at time t+1 (χ t+1 ) is determined according to: ##EQU19## where μ.sub.χ is a constant determined based on an unconditional mean for observed real rate over a period of time, ρ.sub.χ is a first-order autocorrelation of the observed real rate of interest over the period of time, χ t is a real rate value for time t, σ'.sub.χ is selected such that a standard deviation of a plurality of predicted real rate values corresponding to the period of time is approximately equal to a standard deviation of the observed real rate of interest over the period of time, and ε t+1 .sup.χ is a value chosen by a standard normal random deviate function.

Claim 15

The method of claim 13, wherein the estimated real rate of interest is determined based on a short-term nominal rate of interest and a value of inflation is based on expected inflation and the nominal short-term rate of interest.

Claim 16

The method of claim 14, wherein the short-term nominal rate of interest is determined according to: ##EQU20## where μ.sub.π is a constant determined based on an unconditional mean of observed inflation over a period of time, ρ.sub.π is a first-order autocorrelation for inflation over the period of time, π t is an inflation value for time t, and σ'.sub.π 2 is a variance of the innovations in the inflation process over the period of time.

Claim 17

The method of claim 1, wherein the dividend growth value is determined as a homoskedastic stochastic process.

Claim 18

The method of claim 16, wherein the dividend growth value at time t+1 (Δd t+1 ) determined according to: Δd.sub.t+1 =μ.sub.d +ρ.sub.d Δd.sub.t +σ'.sub.d ε.sub.t+1.sup.Δd where μ d is a constant determined based on an unconditional mean for observed dividend growth over a period of time, ρ d is a first-order autocorrelation for the observed dividend growth over the period of time, χ d is a dividend growth value for time t, σ' d is selected such that a standard deviation of a plurality of predicted dividend growth values corresponding to the period of time approximately equal to a standard deviation of observed dividend growth for the period of time, and ε t+1 .sup.Δd is a value chosen by a standard normal random deviate function.

Claim 19

The method of claim 1, wherein the term structure risk (λ) value is approximately equal to a slope of a yield curve at a particular time for a representative investor.

Claim 20

The method of claim 1, wherein the equity correlation (β) value is determined based on observed equity behavior with respect to observed bond behavior.

Claim 21

The method of claim 1, wherein the step of determining fixed-income security pricing comprises the step of determining an n-period yield (y nt ) according to: ##EQU21## where p nt is a logarithm of a time, t, of a default-free bond paying one dollar in n years.

Claim 22

The method of claim 20, wherein p nt is: p.sub.nt =A.sub.n +B.sub.n χ.sub.t +C.sub.n π.sub.t where A.sub.n =A.sub.n-1 =μ.sub.π +B.sub.n-1 μ.sub.χ +C.sub.n-1 μ.sub.π ##EQU22## and A.sub.0 =B.sub.0 =C.sub.0 =0 and where χ t is a real rate value for time t, π t is an inflation value for time t, μ.sub.π is a constant determined based on an unconditional mean for observed inflation over a period of time, μ.sub.χ is a constant determined based on an unconditional mean for observed real rate over the period of time, ρ.sub.χ is a first order autocorrelation of the observed real rate of interest over the period of time, λ is approximately equal to a slope of a yield curve at a particular time, σ'.sub.π is selected such that a standard deviation of a plurality of predicted inflation values corresponding to the period of time is approximately equal to a standard deviation of the observed inflation for the period of time, ρ.sub.π is a first order autocorrelation for the observed inflation over the period of time, and σ.sub.π 2 is a variance of the observed inflation over the period of time.

Claim 23

The method of claim 1, wherein determining equity security pricing comprises determining a price to dividend ratio at a time, t, (pd t ) according to: ##EQU23## where ##EQU24## ƒ.sub.i+1 =ƒ+ƒ.sub.i ρ.sub.d and a.sub.0 =b.sub.0 =c.sub.0 =ƒ.sub.0 =0 and where χ t is a real rate value at time t, π t is an inflation value at time t, Δd t is a dividend growth value at time t, μ.sub.π is a constant determined based on a mean for observed inflation over a period of time, ρ.sub.π is a first-order autocorrelation for the observed inflation over the period of time, σ'.sub.π 2 is a variance of the observed inflation over the period of time, μ.sub.χ is a constant determined based on a mean for observed real rate over the period of time, ρ.sub.χ is a first-order autocorrelation of the observed real rate of interest over the period of time, σ'.sub.χ is selected such that the variance of an inflation process is approximately equal to observed inflation over the period of time, μ d is a constant determined based on a mean for observed dividend growth over the period of time, ρ d is a first-order autocorrelation for dividend growth over the period of time, σ' d is selected such that a standard deviation of a plurality of dividend growth values corresponding to the period of time is approximately equal to a standard deviation of observed dividend growth for the period of time, and β is the equity correlation parameter.

Claim 24

The method of claim 22, wherein equity security returns are determined according to: ##EQU25## where V is a value of a stock market.

Claim 25

In a computer system, a method for pricing equity securities and fixed-income securities having a no arbitrage constraint, the method comprising: determining a term structure risk parameter based on observed term structure data; determining an equity correlation parameter based on a correlation between equity dividends and fixed-income securities; determining a heteroskedastic inflation value; determining a heteroskedastic real rate value; determining a homoskedastic dividend growth value; pricing fixed-income securities based on the term structure risk parameter, the inflation value and the real rate value; and pricing equity securities based on the term structure risk parameter, the inflation value, the real rate value, the dividend growth value, and the equity correlation parameter; and generating pricing data corresponding to the fixed-income security pricing and the equity security pricing.

Claim 26

In a computer system, a method for pricing equity securities and fixed-income securities having a no arbitrage constraint, the method comprising: determining a term structure risk parameter based on observed term structure data; determining an equity correlation parameter based on a correlation between equity dividends and fixed-income securities; determining a heteroskedastic inflation value; determining a heteroskedastic real rate value; determining a homoskedastic dividend growth value; pricing fixed-income securities based on the term structure risk parameter, the inflation value and the real rate value; and pricing equity securities based on the term structure risk parameter, the inflation value, the real rate value, the dividend growth value, and the equity correlation parameter; and generating pricing data corresponding to the fixed-income security pricing and the equity security pricing.

Claim 29

The system of claim 25, wherein the fixed-income securities comprise: one or more short term-bonds; and one or more long-term bonds.

Claim 30

The system of claim 25, wherein the equity securities comprise one or more stocks.

Claim 31

The system of claim 25 wherein the parameter module provides the inflation value.

Claim 32

The system of claim 25 wherein the parameter module provides the real rate value.

Claim 33

The system of claim 25 wherein the parameter module provides the term structure risk parameter.

Claim 34

The system of claim 25 wherein the parameter module provides the dividend growth value.

Claim 35

The system of claim 25 wherein the parameter module provides the equity correlation parameter.

Claim 36

The system of claim 25, wherein the inflation value is determined as a heteroskedastic stochastic process.

Claim 37

The system of claim 25, wherein the real rate value is determined as a heteroskedastic stochastic process.

Claim 38

The system of claim 25, wherein the dividend growth value is determined as a homoskedastic stochastic process.

Claim 41

The apparatus of claim 36, wherein the term structure risk parameter is determined based on a slope of an observed yield curve relevant to a representative investor.

Claim 42

The apparatus of claim 36, wherein the equity correlation parameter is determined based on observed dividend behavior and with respect to observed bond behavior.

Claim 43

The apparatus of claim 36, wherein the term structure risk parameter and the equity correlation parameter are determined such that when fixed-income securities and equity securities are priced for one or more chosen historical times that the prices approximate observed fixed-income security prices and observed equity security prices, respectively, for the one or more chosen historical times.

Claim 44

A machine readable medium having stored thereon sequences of instructions, which when executed by one or more processors, cause one or more electronic devices to: determine a term structure risk parameter based on evaluation of a user; determine an equity correlation parameter based on a correlation between equity dividends and fixed-income securities; n equity correlation parameter based on a correlation between equity dividends and fixed-income securities; determine a heteroskedastic inflation value; determine a hetroskedastic real rate value; determine a homoskedastic dividend growth rate; price fixed-income securities based on the term structure risk parameter, the inflation value and the real rate value; price a equity securities based on the term structure risk parameter, the inflation value, the real rate value, the dividend growth value, and the equity correlation parameter; and generate pricing data corresponding to the fixed-income security pricing and the equity security pricing; wherein pricing fixed-income securities and pricing equity securities are subject to a no arbitrage constraint.

Claim 45

A machine readable medium having stored thereon sequences of instructions, which when executed by one or more processors, cause one or more electronic devices to: determine a term structure risk parameter based on evaluation of a user; determine an equity correlation parameter based on a correlation between equity dividends and fixed-income securities; n equity correlation parameter based on a correlation between equity dividends and fixed-income securities; determine a heteroskedastic inflation value; determine a hetroskedastic real rate value; determine a homoskedastic dividend growth rate; price fixed-income securities based on the term structure risk parameter, the inflation value and the real rate value; price a equity securities based on the term structure risk parameter, the inflation value, the real rate value, the dividend growth value, and the equity correlation parameter; and generate pricing data corresponding to the fixed-income security pricing and the equity security pricing; wherein pricing fixed-income securities and pricing equity securities are subject to a no arbitrage constraint.

Claim 46

The machine readable medium of claim 40 wherein the fixed-income securities comprise: one or more short-term bonds; and one or more long-term bonds.

Claim 47

The machine readable medium of claim 40 wherein the equity securities comprise one or more stocks, mutual funds, warrants, stock options, or derivative equity securities.

Claim 48

The machine readable medium of claim 40, wherein the term structure risk parameter and the equity correlation parameter are determined such that when determining fixed-income security pricing and determining equity security pricing are performed for one or more chosen historical times that the pricing approximates observed fixed-income security pricing and observed equity security pricing for the chosen historical times.

Claim 49

The machine readable medium of claim 40, wherein the term structure risk (λ) value is approximately equal to a slope of a yield curve at a particular time for a representative investor.

Claim 50

The machine readable medium of claim 40, wherein the equity correlation (β) value is determined based on observed equity behavior with respect to observed bond behavior.

Claim 51

A machine readable medium having stored thereon sequences of instructions, which when executed by one or more processors, cause one or more electronic devices to: determine a fixed-income security pricing based on an inflation value, a real rate value and a term structure parameter; determine equity security pricing based on the inflation value, the real rate value, the term structure risk parameter, a dividend growth value, and an equity correlation parameter; and generate pricing data corresponding to the fixed-income security pricing and the equity security pricing.

Claim 52

A machine readable medium having stored thereon sequences of instructions, which when executed by one or more processors, cause one or more electronic devices to: determine a fixed-income security pricing based on an inflation value, a real rate value and a term structure parameter; determine equity security pricing based on the inflation value, the real rate value, the term structure risk parameter, a dividend growth value, and an equity correlation parameter; and generate pricing data corresponding to the fixed-income security pricing and the equity security pricing.

Claim 53

The machine readable medium of claim 46 wherein the fixed-income securities comprise: one or more short-term bonds; and one or more long-term bonds.

Claim 54

The machine readable medium of claim 46 wherein the equity securities comprise one or more stocks, mutual funds, warrants, stock options, or derivative equity securities.

Claim 55

The machine readable medium of claim 46, wherein the term structure risk parameter and the equity correlation parameter are determined such that when determining fixed-income security pricing and determining equity security pricing are performed for one or more chosen historical times that the pricing approximates observed fixed-income security pricing and observed equity security pricing for the chosen historical times.

Claim 56

The machine readable medium of claim 46, wherein the term structure risk (λ) value is approximately equal to a slope of a yield curve at a particular time for a representative investor.

Claim 57

The machine readable medium of claim 46, wherein the equity correlation (β) value is determined based on observed equity behavior with respect to observed bond behavior.