Business enterprise risk model and method
First Claim
1. A method for assessing the risk to the future capital surplus of an enterprise, said method comprising the steps of:
- (a) identifying assets and liabilities of an enterprise;
(b) obtaining data regarding changes in the value of said assets and said liabilities;
(c) analyzing said data to determine variables and correlations among said variables that affect the value of said assets and said liabilities;
(d) simulating at least one scenario of said variables based on said correlations; and
(e) calculating the capital surplus of said enterprise based on the value of said assets and said liabilities for said at least one scenario.
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Abstract
A method for evaluating the risk associated with an enterprise is presented. The method, based on a value-at-risk approach, uses a large number of scenarios to simulate the potential variation in the enterprise'"'"'s future surplus capital based on its current assets and liabilities, and produces a probability distribution of future surplus capital. The scenarios are generated using quasi-Monte Carlo techniques in order to quickly achieve realistic scenarios. Each asset and each type of liability is modeled rigorously, and the effect of credit, interest rate, insurance, currency exchange, and equity risks on those assets and liabilities determined. The model also allocates surplus capital by division according to the risk associated with each division. The model is particularly well-suited for insurance companies.
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Citations
27 Claims
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1. A method for assessing the risk to the future capital surplus of an enterprise, said method comprising the steps of:
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(a) identifying assets and liabilities of an enterprise;
(b) obtaining data regarding changes in the value of said assets and said liabilities;
(c) analyzing said data to determine variables and correlations among said variables that affect the value of said assets and said liabilities;
(d) simulating at least one scenario of said variables based on said correlations; and
(e) calculating the capital surplus of said enterprise based on the value of said assets and said liabilities for said at least one scenario. - View Dependent Claims (2, 3, 4, 5, 6, 7)
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8. A method for analyzing an insurance company according to downside risk to the capital surplus of said insurance company, said method comprising the steps of:
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(a) identifying assets and liabilities of an enterprise;
(b) obtaining data regarding changes in the value of said assets and said liabilities;
(c) analyzing said data to determine variables and correlations among said variables that affect the value of said assets and said liabilities;
(d) simulating multiple scenarios of said variables based on said correlations; and
(e) calculating the capital surplus of said enterprise based on the value of said assets and said liabilities for said multiple scenarios;
(f) producing a distribution of said calculated capital surplus;
(g) extracting a downside risk from said distribution; and
(h) analyzing said insurance company based said downside risk. - View Dependent Claims (9, 10, 11, 12, 13, 14)
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15. A method of assessing the performance of an enterprise, said method comprising the steps of:
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(a) identifying assets and liabilities of an enterprise;
(b) obtaining data regarding changes in the value of said assets and said liabilities;
(c) analyzing said data to determine variables and correlations that affect the value of said assets and said liabilities;
(d) simulating multiple scenarios of said variables based on said correlations; and
(e) calculating the capital surplus of said enterprise based on the value of said assets and said liabilities for said multiple scenarios;
(f) producing a distribution of said calculated capital surplus; and
(g) analyzing said distribution. - View Dependent Claims (16, 17, 18, 19, 20, 21, 22)
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23. A method of evaluating performance of an enterprise having operating divisions, said method comprising the steps of:
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(a) identifying an enterprise having plural divisions;
(b) scaling assets and liabilities of each division of said plural divisions by a factor to yield slices of said assets and said liabilities of said each division;
(c) determining incremental contributions in the future to said surplus capital of said enterprise by said slices beginning with a single slice of said first division and proceeding to a first slice of a second division and continuing until said contribution of a last slice of said assets and said liabilities of a last division is determined;
(d) adding said incremental contributions to said surplus capital for said each division from said slices to obtain the contribution in the future of said each division to said surplus capital of said enterprise; and
(e) identifying the risk distribution contribution from said each division from the added incremental contributions of said each division. - View Dependent Claims (24, 25, 26, 27)
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Specification