Financial activity relating to natural peril events

• US 20090259581A1
• Filed: 06/17/2009
• Published: 10/15/2009
• Est. Priority Date: 12/21/2004
• Status: Abandoned Application

• Current Assignee: Weather RISK Solutions LLC
• Original Assignee: Weather RISK Solutions LLC
• Inventors: Protter, Philip Elliot, Horowitz, Kenneth A., Bequillard, Alfredo L., Wilks, Daniel S., Nyren, Alexander P.
• Application Number:
  US12/456,449
• Publication Number:
  US 20090259581A1
• Time in Patent Office: Days
• US Class Current: 705/35
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A computer implemented method and system for automatically setting prices of financial products in a financial activity having a plurality of possible outcomes, includes receiving a first request from a participant terminal to purchase a financial product for one of the possible outcomes, i; and electronically computing a price for the requested financial product, in response to the first request, based at least in part on a first formula. In one example, the financial products include contracts in a one-sided market of buyer participants where the outcomes are mutually exclusive and collectively exhaustive

Claims

1. A computer implemented method for automatically setting prices of financial products in a financial activity having Z possible outcomes, including the steps of:

receiving a first request from a participant terminal to purchase a financial product for one of the possible outcomes, i;

electronically computing a price in response to the first request, based at least in part on at least one of the following first and second formulas

Pⁱ_t=Kπ

ⁱ_t=K [π

ⁱ<sub>t−

1</sub>+α

_tπ

ⁱ<sub>t−

1</sub>(1−

π

ⁱ<sub>t−

1</sub>)] for outcome i,

P^k_t=Kπ

^k_t=K [π

^k<sub>t−

1</sub>(1−

α

_tπ

ⁱ<sub>t−

1</sub>)], k≠

i for other outcomes,

where, for the first formula,

i is the outcome requested by the participant,

t is a time index counter designating the current transaction,

t−

1 is a time index counter designating the last previous transaction,

Pⁱ_t is the price for the purchase requested by the participant

K=c exp[rj/365],

c is a scaling constant,

r is a constant proportional to the short term annualized interest rate,

j is the relative Julian date since the financial activity was started,

π

ⁱ<sub>t−

1</sub> is the last previously calculated pricing probability for outcome I,

α

_t is the last previously calculated price for outcome I;

α

_t is a price adjustment parameter, having a value between 0 and 0.1;

where, for the second formula,

k≠

i represents the set of all other outcomes,

t is a time index counter designating the current transaction,

t−

1 is a time index counter designating the last previous transaction,

P^k_t where k≠

i is the set of all other prices, updated to take into account the purchase requested by the participant,

π

^k<sub>t−

1</sub> is the latest calculated pricing probability for outcome k.

Kπ

^k<sub>t−

1</sub> is the latest calculated price for outcome k.

K=c exp[rj/365],

c is a scaling constant,

r is a constant proportional to the short term cost of money,

j is the relative Julian date since the financial activity was started;

α

_t is said price adjustment parameter; and

the value of said price adjustment parameter α

_t, is as least as great as α

_t=1/ n_t, where n_t, the average number of options per outcome, is equal to;

2. The method according to claim 1 where α

_t, is electronically calculated to be equal to;

α

_t=min[α

_max,H/ n<sub>t−

1</sub>]

where H is a constant having a value between 1 and 100 and α

_max is the initial value for α

_t

3. The method according to claim 1 further comprising the step of adding a null outcome that is deemed to have occurred when none of the other outcomes have occurred.

4. The method according to claim 1 further comprising the step of processing a request for multiple financial products for the same outcome by successively repeating the steps of calculating a price for each financial product and updating prices for all other outcomes for each financial product, taken one at a time.

5. The method according to claim 1 wherein the outcomes are mutually exclusive and collectively exhaustive

6. The method according to claim 1 further comprising the step of setting an initial price for each outcome, prior to receiving an initial request.

7. The method according to claim 1 further comprising the steps of:

receiving a second request from a participant terminal to purchase a financial product for one of the possible outcomes;

delivering a price for the second request to the user terminal, with the prices for all other outcomes updated in response to the first request.

8. The method according to claim 1 wherein the first request from a participant terminal is sent to a computer having memory with a data structure stored in said memory, said data structure comprising the first and the second formulas.

9. The method according to claim 8 wherein the prices corresponding to the possible outcomes are stored in said memory.

10. A computer implemented system for automatically setting prices of financial products in a financial activity having a plurality of possible outcomes, comprising:

a communication port for receiving a first request from a participant terminal to purchase a financial product for one of the possible outcomes, i;

a computer having memory with a data structure stored in said memory, said data structure comprising the following first and second formulas

Pⁱ_t=Kπ

ⁱ_t=K [π

ⁱ<sub>t−

1</sub>+α

_tπ

ⁱ<sub>t−

1</sub>(1−

π

ⁱ<sub>t−

1</sub>)] for outcome i,

P^k_t=Kπ

^k_t=K [π

^k<sub>t−

1</sub>(1−

α

_tπ

ⁱ<sub>t−

1</sub>)], k≠

i for other outcomes,

where, for the first formula,

i is the outcome requested by the participant,

t is a time index counter designating the current transaction,

t−

1 is a time index counter designating the last previous transaction,

Pⁱ_t is the price for the purchase requested by the participant

K=c exp[rj/365],

c is a scaling constant,

r is a constant proportional to the short term annualized interest rate,

j is the relative Julian date since the financial activity was started,

π

ⁱ<sub>t−

1</sub> is the last previously calculated pricing probability for outcome I,

Kπ

ⁱ<sub>t−

1</sub> is the last previously calculated price for outcome I;

α

_t is a price adjustment parameter, having a value between 0 and 0.1;

where, for the second formula,

k≠

i represents the set of all other outcomes,

t is a time index counter designating the current transaction,

t−

1 is a time index counter designating the last previous transaction,

P^k_t where k≠

i is the set of all other prices, updated to take into account the purchase requested by the participant,

π

^k<sub>t−

1</sub> is the latest calculated pricing probability for outcome k.

Kπ

^k<sub>t−

1</sub> is the latest calculated price for outcome k.

K=c exp[rj/365],

c is a scaling constant,

r is a constant proportional to the short term cost of money,

j is the relative Julian date since the financial activity was started;

α

_t is said price adjustment parameter; and

the value of said price adjustment parameter α

_t, is as least as great as α

_t=1/ n_t, where n_t, the average number of options per outcome, is equal to;

11. The system according to claim 10 wherein:

α

_t=min[α

_max,H/ n<sub>t−

1</sub>]

where H is a constant having a value between 1 and 100 and α

_max is the initial value for α

_t

12. The system according to claim 11 wherein prices corresponding to the possible outcomes are stored in said data structure.

13. The system according to claim 11 wherein initial prices corresponding to the possible outcomes are stored in said data structure, prior to receiving an initial request.

14. An article of manufacture including a machine readable medium for causing a computer system to carry out a method for automatically setting prices of financial products in a financial activity having Z possible outcomes, including the steps of:

receiving a first request from a participant terminal to purchase a financial product for one of the possible outcomes, i;

electronically computing a price in response to the first request, based at least in part on at least one of the following first and second formulas

Pⁱ_t=Kπ

ⁱ_t=K [π

ⁱ<sub>t−

1</sub>+α

_tπ

ⁱ<sub>t−

1</sub>(1−

π

ⁱ<sub>t−

1</sub>)] for outcome i,

P^k_t=Kπ

^k_t=K [π

^k<sub>t−

1</sub>(1−

α

_tπ

ⁱ<sub>t−

1</sub>)], k≠

i for other outcomes,

where, for the first formula,

i is the outcome requested by the participant,

t is a time index counter designating the current transaction,

t−

1 is a time index counter designating the last previous transaction,

Pⁱ_t is the price for the purchase requested by the participant

K=c exp[rj/365],

c is a scaling constant,

r is a constant proportional to the short term annualized interest rate,

j is the relative Julian date since the financial activity was started,

π

ⁱ<sub>t−

1</sub> is the last previously calculated pricing probability for outcome I,

Kπ

ⁱ<sub>t−

1</sub> is the last previously calculated price for outcome I;

α

_t is a price adjustment parameter, having a value between 0 and 0.1;

where, for the second formula,

k≠

i represents the set of all other outcomes,

t is a time index counter designating the current transaction,

t−

1 is a time index counter designating the last previous transaction,

P^k_t where k≠

i is the set of all other prices, updated to take into account the purchase requested by the participant,

π

^k<sub>t−

1</sub> is the latest calculated pricing probability for outcome k.

Kπ

^k<sub>t−

1</sub> is the latest calculated price for outcome k.

K=c exp[rj/365],

c is a scaling constant,

r is a constant proportional to the short term cost of money,

j is the relative Julian date since the financial activity was started;

α

_t is said price adjustment parameter; and

the value of said price adjustment parameter α

_t, is as least as great as α

_t=1/ n_t, where n_t, the average number of options per outcome, is equal to;