SYSTEMS AND METHODS FOR IMPLEMENTING AN INTEREST-BEARING INSTRUMENT
First Claim
1. A computer-implemented apparatus for facilitating issuance of an interest-bearing instrument, comprising:
- a memory;
a computer processor in communication with the memory, the computer processor executing functions comprising;
(a) receiving data corresponding to market factors;
(b) storing the received market factors data in a database;
(c) selecting an option model and related parameters;
(d) receiving data corresponding to regression model parameters;
(e) receiving data corresponding to prepayment model parameters;
(f) receiving data corresponding to interest rate term structure model parameters;
(g) receiving data corresponding to default term structure parameters;
(h) receiving data corresponding to transaction indicative details;
(i) normalizing received and stored data;
(j) calculating prepayment probabilities;
(k) calculating a forward term structure;
(l) calculating discount factors;
(m) calculating a default term structure;
(n) calculating an option value from the option model using the prepayment probabilities, the forward term structure, the discount factors, and the default term structure; and
(o) calculating a principal modification value based on the option value.
0 Assignments
0 Petitions
Accused Products
Abstract
Systems and methods are provided that allow a financial instrument to be structured so that the underlying borrowed principal is callable, putable, or both. In a preferred embodiment, a Range Accrual Mortgage is structured so that the underlying borrowed principal is a mortgage that is callable, putable, or both by embedding into the loan structure a rate put option. Systems and methods according to the invention lend symmetry to the interest rate behavior of certain borrowings by making explicit the pricing and market value of options that were previously only implicit in the borrowing structure. For example, a mortgage in accordance with the invention should provide incentives for either the homeowner or the bank to refinance the mortgage and should do so whether interest rates rise or fall, and no matter what path interest rates follow from the inception of the instrument until the maturity of the instrument. The invention achieves the desired advantages, in part, by extending the characteristics of a borrowing via the addition of a rate put option on an interest rate and, in part, by permitting correlative adjustments to the outstanding loan principal.
-
Citations
39 Claims
-
1. A computer-implemented apparatus for facilitating issuance of an interest-bearing instrument, comprising:
- a memory;
a computer processor in communication with the memory, the computer processor executing functions comprising;(a) receiving data corresponding to market factors; (b) storing the received market factors data in a database; (c) selecting an option model and related parameters; (d) receiving data corresponding to regression model parameters; (e) receiving data corresponding to prepayment model parameters; (f) receiving data corresponding to interest rate term structure model parameters; (g) receiving data corresponding to default term structure parameters; (h) receiving data corresponding to transaction indicative details; (i) normalizing received and stored data; (j) calculating prepayment probabilities; (k) calculating a forward term structure; (l) calculating discount factors; (m) calculating a default term structure; (n) calculating an option value from the option model using the prepayment probabilities, the forward term structure, the discount factors, and the default term structure; and (o) calculating a principal modification value based on the option value. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 22)
- a memory;
-
14. A method for facilitating issuance of an interest-bearing instrument, comprising:
-
(a) receiving data corresponding to market factors; (b) storing the received market factors data in a database; (c) selecting an option model and related parameters; (d) receiving data corresponding to regression model parameters; (e) receiving data corresponding to prepayment model parameters; (f) receiving data corresponding to interest rate term structure model parameters; (g) receiving data corresponding to default term structure parameters; (h) receiving data corresponding to transaction indicative details; (i) normalizing received and stored data; (j) calculating prepayment probabilities; (k) calculating a forward term structure; (l) calculating discount factors; (m) calculating a default term structure; (n) calculating an option value from the option model using the prepayment probabilities, the forward term structure, and the discount factors, and the default term structures; and (o) calculating a principal modification value based on the option value. - View Dependent Claims (15, 16, 17, 18, 19, 20, 21, 23, 24, 25, 26)
-
-
27. A memory storing instructions adapted to be executed by a computer processor to perform a method for facilitating issuance of an interest-bearing instrument, comprising:
-
(a) receiving data corresponding to market factors; (b) storing the received market factors data in a database; (c) selecting an option model and related parameters; (d) receiving data corresponding to regression model parameters; (e) receiving data corresponding to prepayment model parameters; (f) receiving data corresponding to interest rate term structure model parameters; (g) receiving data corresponding to default term structure parameters; (h) receiving data corresponding to transaction indicative details; (i) normalizing received and stored data; (j) calculating prepayment probabilities; (k) calculating a forward term structure; (l) calculating discount factors; (m) calculating a default term structure; (n) calculating an option value from the option model using the prepayment probabilities, the forward term structure, the discount factors, and the default teem structure; and (o) calculating a principal modification value based on the option value. - View Dependent Claims (28, 29, 30, 31, 32, 33, 34, 35, 36, 37, 38, 39)
-
Specification