EP1614066A2 - Financial product pricing system - Google Patents
Financial product pricing systemInfo
- Publication number
- EP1614066A2 EP1614066A2 EP03812638A EP03812638A EP1614066A2 EP 1614066 A2 EP1614066 A2 EP 1614066A2 EP 03812638 A EP03812638 A EP 03812638A EP 03812638 A EP03812638 A EP 03812638A EP 1614066 A2 EP1614066 A2 EP 1614066A2
- Authority
- EP
- European Patent Office
- Prior art keywords
- product
- variables
- data
- market
- calculating
- Prior art date
- Legal status (The legal status is an assumption and is not a legal conclusion. Google has not performed a legal analysis and makes no representation as to the accuracy of the status listed.)
- Ceased
Links
Classifications
-
- G—PHYSICS
- G06—COMPUTING; CALCULATING OR COUNTING
- G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
- G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
- G06Q40/04—Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
-
- G—PHYSICS
- G06—COMPUTING; CALCULATING OR COUNTING
- G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
- G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
-
- G—PHYSICS
- G06—COMPUTING; CALCULATING OR COUNTING
- G06Q—INFORMATION AND COMMUNICATION TECHNOLOGY [ICT] SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES; SYSTEMS OR METHODS SPECIALLY ADAPTED FOR ADMINISTRATIVE, COMMERCIAL, FINANCIAL, MANAGERIAL OR SUPERVISORY PURPOSES, NOT OTHERWISE PROVIDED FOR
- G06Q40/00—Finance; Insurance; Tax strategies; Processing of corporate or income taxes
- G06Q40/06—Asset management; Financial planning or analysis
Definitions
- the invention relates to a system for calculating the price of financial products.
- Financial products, and in particular derivative products, are subject to very strict regulations which oblige financial institutions and commercial companies using them to calculate their prices according to a certain number of assumptions which involve variables specific to the characteristics of the products considered and variables specific to the financial markets to which these products belong. These prices must be calculated for valuation purposes and also to be included in the regulatory Risk reports.
- the invention aims to provide a system which makes it possible to considerably simplify the operations for calculating the price of a financial product.
- the subject of the invention is a system for calculating the price of a financial product, comprising interface means, data storage means, calculation means and data processing means, remarkable system.
- the interface means comprise means for entering into said system identification and description data of said product, said data comprising: ai) contextual data of said product comprising at least one valuation currency and at at least one underlying, a2) data characteristic of said product comprising a set of events and flows associated with said product
- the data processing means comprise means for generating from said identification and description data a developed timetable in which an event and / or flow relating to said product is associated with each date
- the data processing means furthermore comprise means for interpreting said timetable to generate: d) a table of variables of said product from said events and / or flows, c2) for each date of said developed schedule, a function for calculating said product price as a function of at least one of said product variables
- the interface means comprise means for entering a list of market variables associated with said product and
- the data processing means comprise means for generating a compact script containing all the data necessary for calculating the price of the product.
- the means for entering the identification and description data of said product comprise means for entering said data in the form of a compact script.
- the means for entering the identification and description data of said product include input windows into which said contextual data and said characteristic data can be entered separately.
- the data processing means also comprise means for verifying the interpretation of said schedule.
- said calculation means comprise: e1) means for calculating, for each of the scenarios / market conditions and for each of said dates, the value of each of said market variables, e2) means for calculating, for each of the scenarios / market conditions and for each of said dates, the value of the product variables as a function of said values of market variables, e3) means for calculating said price as a function of said values of variables of product in all scenarios / market states.
- FIG. 1 is a block diagram illustrating the basic means used by the system according to the invention to describe a financial product and calculate the price of this product;
- - Figure 2 is a block diagram illustrating the means and data necessary for the calculation of a financial product by the system according to the invention
- - Figure 3 is a block diagram illustrating the process of calculating a financial product using the system according to the invention
- Figures 4 and 5 are tables illustrating the storage means necessary for the calculation process of Figure 3;
- FIG. 1 the calculation of the price of a financial product using the system according to the invention uses the following means and data:
- - market hypotheses 3 known to specialists in financial techniques (for example normal, lognormal, “mean reverting”, multi-factor, etc.), which depend, among other things, on the underlying asset 4 (for example stock, bond , exchange rate, credit) attached to the product under consideration; these market hypotheses make it possible to determine the different scenarios or market conditions and the way in which these scenarios will be generated and modeled, each scenario corresponding to a set of possible values of market variables, which is used to calculate the price of the financial product; - calculation means comprising numerical resolution methods known to specialists in financial techniques (for example trees
- the system allowing a user to arrive at the calculation of the price of a financial product involves first of all a description of the product.
- This requires first of all the input by a user, thanks to the system's interface means: - contextual data of the product, namely at least one valuation currency (allowing to define all the conventions of the market or the place concerned) and one or more underlyings (for example, yield curve, "Equity", exchange rate, etc.), namely the market quantities used to define the product;
- this contextual data indicates which market variables will be involved in calculating the price of the product and for which market hypotheses are chosen;
- This data includes a schedule of events and flows associated with the product.
- a user can: - either enter a compact script 10 of the type represented in FIG. 8, which contains all the information (contextual data and characteristic data of the product) and which will then be separated into different objects each containing these two types of data,
- the data processing means of the system are used to generate at 13 a developed timetable, that is to say an exhaustive series of dates D1, D2 Dn to each of which is associated an event and / or a flow relating to the product (table T1).
- a table of objects T2 and a table of product variables T3 are constructed at 14 and 15 respectively by means of an interpreter ("PARSER").
- - Y t represents the current value of the product variable (s)
- - 1 represents time
- - x * ... x n represent the value of market variables, market variables which will be identified in 17.
- Table T3 is a list of product variables and the values associated with each of these variables, values which are updated by the evolution tree (s) of table T2.
- the system uses verification means to ensure the consistency of the data in table T2.
- a market analysis is carried out allowing the construction in 18 of a table of “WORLD” T4 objects.
- This table consists of a list of the additional market information that is required on each of the dates D1 to Dn to calculate the price or evaluate the product.
- the exchange rate - the exchange rate
- the interest rate preferably represented by the discount factors. It can also be zero coupon rates, Libor, swap, etc.
- the calculation tool 1 calculates the price by applying one of the digital resolution methods 5.
- FIG. 3 illustrates the numerical resolution of the problem of calculating the price of the product.
- the contextual data used in them which were obtained as described with reference to FIG. 2, and the number of product variables are acquired. .
- the digital resolution means generate, according to the market assumptions considered, the values of the market variables at each date D1,
- each date and scenario / market state corresponds to a table Tvvm of values of market variables.
- the digital resolution means calculate, for each date and scenario / state considered on the market, the values of the product variables.
- Figure 5 shows, for each date and scenario / state considered in the market, there is a Tvp table of the values of the product variables.
- the digital resolution means finally formulate a product price as a function of all the calculated values of the product variables.
- the convertible bond pays from any starting point (window 40), for five years (window 41), with an annual frequency (window 42), a coupon (window 43).
- the bond pays its redemption value (window 45).
- the bond conversion characteristic is expressed by the fact that at any time ("Od", window 46), during the five years (window 47), the value of the product is the maximum of the value of the product and its conversion value (window 48):
- the system according to the invention generates and can then display, using the interface means, as shown in FIG. 7, the product flows, from the data entered in the form of a pre-established format. This allows a user to verify that the expected flows are well represented and captured by the system.
- the data processing means allow the generation by the system of a script (FIG. 8), that is to say of a code describing exactly the characteristics of the product and containing all the information necessary for the calculation of the product price.
- the script shown in Figure 8, can be exchanged between all stakeholders to describe and calculate the price of the product.
- all the information can be entered by a user in the form of a compact script of the type represented in FIG. 8, which the calculator dissociates into different objects, each containing contextual data and characteristic data of the product.
- the description of the product by windowing, leading to the generation of a script capable of being exchanged between and interpreted by different computers, as described above, or directly in the form of a script, requires use by the user predefined words that are part of a dictionary that can be enriched if necessary; and a syntax defining the type of sentence structure that are accepted and understood.
- Convert max (convert, Conv_Ratio (dax)) is a variable assignment using a function whose name is predefined "max”, which is applied to two parameters:
- function (FUNCTION_NAME
- exprList expression ⁇ "," expression ⁇ ;
Landscapes
- Business, Economics & Management (AREA)
- Engineering & Computer Science (AREA)
- Finance (AREA)
- Accounting & Taxation (AREA)
- Development Economics (AREA)
- Theoretical Computer Science (AREA)
- Physics & Mathematics (AREA)
- General Physics & Mathematics (AREA)
- General Business, Economics & Management (AREA)
- Economics (AREA)
- Marketing (AREA)
- Strategic Management (AREA)
- Technology Law (AREA)
- Entrepreneurship & Innovation (AREA)
- Operations Research (AREA)
- Human Resources & Organizations (AREA)
- Game Theory and Decision Science (AREA)
- Financial Or Insurance-Related Operations Such As Payment And Settlement (AREA)
Description
Claims
Applications Claiming Priority (2)
Application Number | Priority Date | Filing Date | Title |
---|---|---|---|
FR0215460A FR2848315A1 (en) | 2002-12-06 | 2002-12-06 | Calculation system for costing financial products includes schedule of payments and dates used in calculating overall cost of financial product |
PCT/IB2003/005680 WO2004053756A2 (en) | 2002-12-06 | 2003-12-05 | Financial product pricing system |
Publications (1)
Publication Number | Publication Date |
---|---|
EP1614066A2 true EP1614066A2 (en) | 2006-01-11 |
Family
ID=32320065
Family Applications (1)
Application Number | Title | Priority Date | Filing Date |
---|---|---|---|
EP03812638A Ceased EP1614066A2 (en) | 2002-12-06 | 2003-12-05 | Financial product pricing system |
Country Status (5)
Country | Link |
---|---|
US (1) | US8065220B2 (en) |
EP (1) | EP1614066A2 (en) |
AU (1) | AU2003302789A1 (en) |
FR (1) | FR2848315A1 (en) |
WO (1) | WO2004053756A2 (en) |
Families Citing this family (2)
Publication number | Priority date | Publication date | Assignee | Title |
---|---|---|---|---|
AU2011315133A1 (en) * | 2010-10-10 | 2013-05-02 | Super Derivatives, Inc. | Device, method and system of automatically defining a financial instrument |
US9792565B2 (en) * | 2011-05-31 | 2017-10-17 | Sap Se | Computing marketing scenarios based on market characteristics |
Family Cites Families (14)
Publication number | Priority date | Publication date | Assignee | Title |
---|---|---|---|---|
US6456982B1 (en) * | 1993-07-01 | 2002-09-24 | Dragana N. Pilipovic | Computer system for generating projected data and an application supporting a financial transaction |
US6377940B2 (en) * | 1998-11-05 | 2002-04-23 | International Securities Exchange, Llc | Method and apparatus for setting a price for a security on an automated exchange based on a comparison of prices on other exchanges |
US7099839B2 (en) * | 1999-09-08 | 2006-08-29 | Primex Holdings, Llc | Opening price process for trading system |
US6546375B1 (en) * | 1999-09-21 | 2003-04-08 | Johns Hopkins University | Apparatus and method of pricing financial derivatives |
GB0206440D0 (en) * | 2002-03-18 | 2002-05-01 | Global Financial Solutions Ltd | System for pricing financial instruments |
US7389260B1 (en) * | 2000-05-17 | 2008-06-17 | Tvc International Inc. | Continuously updated data processing method for measuring financial value creation |
WO2002029694A1 (en) * | 2000-10-06 | 2002-04-11 | Slyke Oakley E Van | Liquid insurance contracts |
US20030033261A1 (en) * | 2001-03-16 | 2003-02-13 | Knegendorf William A. | Method for performing risk-based pricing of a service or good |
US7418418B2 (en) * | 2001-06-12 | 2008-08-26 | Blackrock Financial Management, Inc. | System and method for pricing fixed income securities |
US20020198819A1 (en) * | 2001-06-21 | 2002-12-26 | Rodrigo Munoz | Method and apparatus for risk based pricing |
US7315839B2 (en) * | 2001-09-20 | 2008-01-01 | Ubs Ag | Securities pricing system |
US7467108B2 (en) * | 2002-01-18 | 2008-12-16 | Ron Papka | System and method for predicting security price movements using financial news |
US7882010B2 (en) * | 2002-06-07 | 2011-02-01 | The Nasdaq Omx Group, Inc. | Opening price process for trading system |
JP4461245B2 (en) * | 2003-05-07 | 2010-05-12 | 学校法人慶應義塾 | Stock price fluctuation analysis system |
-
2002
- 2002-12-06 FR FR0215460A patent/FR2848315A1/en not_active Withdrawn
-
2003
- 2003-12-05 EP EP03812638A patent/EP1614066A2/en not_active Ceased
- 2003-12-05 WO PCT/IB2003/005680 patent/WO2004053756A2/en not_active Application Discontinuation
- 2003-12-05 US US10/537,650 patent/US8065220B2/en active Active
- 2003-12-05 AU AU2003302789A patent/AU2003302789A1/en not_active Abandoned
Non-Patent Citations (1)
Title |
---|
None * |
Also Published As
Publication number | Publication date |
---|---|
WO2004053756A2 (en) | 2004-06-24 |
US20080133253A1 (en) | 2008-06-05 |
US8065220B2 (en) | 2011-11-22 |
WO2004053756A8 (en) | 2004-07-29 |
AU2003302789A1 (en) | 2004-06-30 |
FR2848315A1 (en) | 2004-06-11 |
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