Method and apparatus for matching risk to return
First Claim
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1. A method of matching a level of risk to an expected return for a financial product, the method comprising:
- selecting a first and a second investment option;
selecting a duration;
calculating a risk and a corresponding return on investment for each of said investment options based on said duration; and
calculating an efficient frontier between said first and second investment options, said efficient frontier defining a plurality of risks and corresponding expected returns on investment for said financial product.
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Abstract
A system, apparatus, method, computer program code and means for matching a level of risk to an expected return for a financial product includes selecting a first and a second investment option and a duration. A risk and a corresponding return on investment for each of said investment options are calculated based on the duration. An efficient frontier is then calculated between the first and second investment options, where the efficient frontier defines a number of risks and corresponding expected returns on investment for the financial product.
41 Citations
20 Claims
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1. A method of matching a level of risk to an expected return for a financial product, the method comprising:
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selecting a first and a second investment option;
selecting a duration;
calculating a risk and a corresponding return on investment for each of said investment options based on said duration; and
calculating an efficient frontier between said first and second investment options, said efficient frontier defining a plurality of risks and corresponding expected returns on investment for said financial product. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8)
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9. A method of evaluating an application for a financial product, the method comprising:
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establishing an efficient frontier defining a plurality of expected returns on investment associated with a plurality of risks of loss;
receiving application data defining an application for a financial product;
estimating a calculated risk of loss associated with said application;
calculating, based at least in part on said expected loss data, a calculated return on investment of said application; and
comparing said calculated return on investment to an expected return on investment associated with said calculated risk of loss. - View Dependent Claims (10, 11, 12, 14, 15, 16)
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13. A method of pricing a financial product, comprising:
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establishing an efficient frontier defining a plurality of expected returns on investment (ROI) associated with a plurality of risks of loss;
receiving application data defining an application for a financial product;
selecting a price for said financial product;
calculating, based at least in part on said application data, expected cash flow data;
calculating, based at least on said expected cash flow data and said price, a potential ROI for said application;
comparing said potential ROI with said expected ROI at a given risk of loss; and
approving said application with said price if said potential ROI is within a target range of said expected ROI.
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17. A method for matching a level of risk to an expected return for a financial product, the method comprising:
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selecting a first investment option, wherein said first investment option is a low risk option;
selecting a second investment option, wherein said second investment option is a higher risk option than said first investment option;
determining an estimated lifetime net income for said first and second investment options;
determining an estimated lifetime annualized net income for said first and second investment options;
dividing said estimated lifetime net income by said annualized net income for said first and second investment options to determine a corresponding return on investment for each of said first and second investment options;
calculating a risk for each of said corresponding returns on investment each of said investment options based on said duration; and
calculating an efficient frontier between said first and said second investment options, said efficient frontier defining a plurality of risks and corresponding returns on investment for said financial product.
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18. A system for for matching a level of risk to an expected return for a financial product having a duration, the system comprising:
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a processor;
a communications device, in communication with said processor; and
a memory unit in communication with said processor and storing a program, wherein said processor is operative with said program to;
select a first investment option and a second investment option;
calculate a risk and a corresponding return on investment for each of said investment options based on said duration; and
calculate an efficient frontier between said first and said second investment options, said efficient frontier defining a plurality of risks and corresponding returns on investment for said financial product.
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19. An apparatus for matching a level of risk to an expected return for a financial product having a duration, the system comprising:
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means for selecting a first and a second investment option;
means for calculating a risk and a corresponding return on investment for each of said investment options based on said duration; and
means for calculating an efficient frontier between said first and said second investment options, said efficient frontier defining a plurality of risks and corresponding returns on investment for said financial product.
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20. A system for pricing a financial product, comprising:
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a processor;
a communications device, in communication with said processor, receiving application data defining an application for a financial product;
a memory unit in communication with said processor and storing a program, wherein said processor is operative with said program to;
establish an efficient frontier defining a plurality of expected returns on investment (ROI) associated with a plurality of risks of loss;
select a price for said financial product;
calculate, based at least in part on said application data, expected cash flow data;
calculate, based at least on said expected cash flow data and said price, a potential ROI for said application;
compare said potential ROI with said expected ROI at a given risk of loss; and
approve said application with said price if said potential ROI is within a target range of said expected ROI.
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Specification