Method and system for jointly estimating cash flows, simulated returns, risk measures and present values for a plurality of assets

• US 5,812,988 A
• Filed: 04/06/1995
• Issued: 09/22/1998
• Est. Priority Date: 12/06/1993
• Status: Expired due to Term

• Current Assignee: Investments Analytic Incorporated
• Original Assignee: Investments Analytic Incorporated
• Inventors: Sandretto, Michael J.
• Primary Examiner(s): Au, Amelia
• Application Number:
  US08/418,111
• Time in Patent Office: 1,265 Days
• Field of Search: 395/236, 395/235, 364/408, 364/407, 364/401, 700/36, 700/35, 705/35, 705/36, 705/10
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

Methods and apparatus for: (1) inputting economic variables expected to influence future asset values and asset-specific variables; (2) estimating financial statements, future asset values, and tentative asset NPVs using estimated economic variables and estimated asset-specific variables; (3) estimating different financial statements, future asset values and current asset NPVs assuming different estimates of the economic variables that affect asset values; and (4) processes to: (a) equate; or (2) reduce to acceptably small numbers the differences between: (i) the risk measures, terminal values, default premiums, and risk premiums used to determine current values, and (ii) risk measures, terminal values, default premiums, and risk premiums implied by the estimates of economic and firm-specific variables.

Claims

1. A data processing system for providing an indication of an output risk measure using jointly determined risk measures for a plurality of assets comprising:

(a) a computer processor including;

1) a first storage device for storing a computer program;

2) a second storage device for storing data corresponding to a plurality of variables, including;

(i) data corresponding to a set of economic variables including a risk premium, and

(ii) for each asset, data corresponding to a set of asset-specific variables including an input risk measure;

3) a central processing unit for processing data stored in said second storage device in accordance with said computer program stored in said first storage device;

4) an input device operable for entering said data for storage in said second storage device, and

5) an output device operable to provide an output of the results of said central processing unit;

(b) said computer processor operable under control of said computer program to carry out the following steps;

1) processing said data corresponding to said set of economic variables and said data corresponding to said set of asset-specific variables to determine initial cash flows for each of said plurality of assets;

2) generating alternate data corresponding to said plurality of economic and asset-specific variables;

3) processing said alternate data to determine corresponding alternate cash flows for each of said plurality of assets;

4) processing said data corresponding to said set of economic variables, said data corresponding to said set of asset-specific variables and said initial cash flows to determine an initial value for each of said plurality of assets and processing said alternate data and said alternate cash flows to determine an alternate value for each of said plurality of assets;

5) processing said initial values and said alternate values to determine a simulated asset return for each of said assets;

6) processing at least one of said initial values and at least one of said alternate values to determine a simulated index return;

7) jointly processing said simulated asset return and said simulated index return to determine said output risk measure for each of said assets; and

8) using a iterative converging process, comparing a value of said input risk measures and said output risk measures to determine whether said output risk measures are within a first predetermined acceptable range, and in response thereto either;

(i) if at least one said output risk measure is not within said first predetermined acceptable range, determine and substitute a new value for said input risk measure and use said new value for said input risk measure to process data according to steps (b)

     4)-8), or

(ii) if said output risk measures are within said first predetermined acceptable range, then provide an indication of said output risk measure on said output device.

2. A data processing system as claimed in claim 1, wherein at least one of said plurality of assets has a known market value, and wherein said computer processor is operable under control of said computer program to carry our the following additional step:

9) determining a difference between said initial value and the known market value of at least one of said assets to determine whether said difference is within second predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said second predetermined acceptable range, determine and substitute a new value for said risk premium and use said new value of said risk premium to process data according to steps (b)

     4)-9), or

(ii) if said difference is within said second predetermined acceptable range, then the value of said output risk premium represents the risk premium determined by said data processing system; and

(d) means for creating a portfolio of assets in accordance with said risk premium determined by said data processing system.

3. A data processing system as claimed in claim 1 wherein at least two of said plurality of assets have a known market value, and wherein said economic variables further includes an inflation rate, and wherein said computer processor is operable under control of said computer program to carry out the following additional steps:

9) processing said data corresponding to said set of economic variables, including said inflation rate, and said data corresponding to said set of asset-specific variables to determine an initial value for each of said plurality of assets and processing said alternate data to determine an alternate value for each of said plurality of assets; and

10) determining a measure of a differences between the initial value and the respective known market value of at least two of said assets to determine whether said measure is within a third predetermined acceptable range, and in response thereto either;

(i) if said measure is not within said third predetermined acceptable range, determine and substitute a new value for said inflation rate and use said new value of said inflation rate to process data according to steps (b)

     4)-10), or

(ii) if said measure is within said third predetermined acceptable range, then the value of said output inflation rate represents the inflation rate determined by said data processing system; and

(e) means for creating a portfolio of assets in accordance with said inflation rate determined by said data processing system.

11. A data processing system as claimed in claim 1 wherein said initial cash flows have been determined up to a predetermined and specific terminal date and wherein at least one of said plurality of assets has value beyond the said terminal date, said computer processor operable under control of said computer program to carry out the following additional steps:

9) processing said data corresponding to said set of economic variables and said data corresponding to said set of asset-specific variables to determine an initial value for each of said plurality of assets and processing said plurality of sets of said alternate data to determine a plurality of alternate values for each of said plurality of assets; and

10) determining a difference between two ratios wherein;

(i) said first ratio is a market value of said asset at said terminal date divided by a book value of said asset at said terminal date, and

(ii) said second ratio is said asset'"'"'s market value at a date prior to said terminal date divided by said asset'"'"'s book value at said date prior to said terminal date, to determine whether said difference is within a second predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said second predetermined acceptable range, determine and substitute a new value for said market value at said terminal date and use said new value of said market value to process data according to steps (b)

     4)-10), or

(ii) if said difference is within said second predetermined acceptable range, then the value of said output risk measures represent the risk measures determined by said data processing system.

23. A data processing method for creating a portfolio of assets using jointly determining risk measures for a plurality of assets using the system of claim 1.

4. A data processing system for providing an indication of an output risk measure using jointly determined risk measures for a plurality of assets comprising:

(a) a computer processor including;

1) a first storage device for storing a computer program;

2) a second storage device for storing data corresponding to a plurality of variables, including;

(i) data corresponding to a set of economic variables including a risk premium, and

(ii) for each asset, data corresponding to a set of asset-specific variables including an input risk measure;

3) a central processing unit for processing data stored in said second storage device in accordance with said computer program stored in said first storage device;

4) an input device operable for entering said data for storage in said second storage device, and

5) an output device operable to provide an output of the results of said central processing unit;

(b) said computer processor operable under control of said computer program to carry out the following steps;

1) processing said data corresponding to said set of economic variables and said data corresponding to said set of asset-specific variables to determine initial cash flows for each of said plurality of assets;

2) generating a plurality of sets of alternate data, each set of which corresponds to said plurality of economic and asset-specific variables;

3) processing said plurality of sets of alternate data to determine a corresponding plurality of sets of alternate cash flows for each of said plurality of assets;

4) processing said data corresponding to said set of economic variables, said data corresponding to said set of asset-specific variables and said initial cash flows to determine an initial value for each of said plurality of assets and processing said plurality of sets of alternate data and said plurality of sets of alternate cash flows to determine an alternate value for each of said plurality of assets;

5) processing said initial values and said plurality of sets of alternate values to determine a plurality of simulated asset returns for each of said assets;

6) processing at least one of said initial values and at least one of said plurality of sets of alternate values to determine a plurality of simulated index returns;

7) processing said plurality of simulated asset returns and said plurality of simulated index returns to determine said output risk measure for each of said assets; and

8) using an iterative converging process, comparing a value of said input risk measures and said output risk measures to determine whether said output risk measures are within a first predetermined acceptable range, and in response thereto either;

(i) if at least one said output risk measure is not within said first predetermined acceptable range, determine and substitute a new value for said input risk measure and use said new value for said input risk measure to process data according to steps (b)

     4)-8), or

(ii) if said output risk measures are within said first predetermined acceptable range, then provide an indication of said output risk measure on said output device.

5. A data processing system as claimed in claim 4, wherein at least one of said plurality of assets has a known market value, and wherein said computer processor is operable under control of said computer program to carry our the following additional step:

9) determining a difference between said initial value and the known market value of at least one of said assets to determine whether said difference is within second predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said second predetermined acceptable range, determine and substitute a new value for said risk premium and use said new value of said risk premium to process data according to steps (b)

     4)-9), or

(ii) if said difference is within said second predetermined acceptable range, then the value of said output risk premium represents the risk premium determined by said data processing system; and

(d) means for creating a portfolio of assets in accordance with said risk premium determined by said data processing system.

6. A data processing system as claimed in claim 4 wherein at least two of said plurality of assets have a known market value, and wherein said economic variables further includes an inflation rate, and wherein said computer processor is operable under control of said computer program to carry out the following additional steps:

9) processing said data corresponding to said set of economic variables, including said inflation rate, and said data corresponding to said set of asset-specific variables to determine an initial value for each of said plurality of assets and processing said plurality of sets of alternate data to determine a plurality of alternate values for each of said plurality of assets; and

10) determining a measure of a differences between the initial value and the respective known market value of at least two of said assets to determine whether said measure is within a third predetermined acceptable range, and in response thereto either;

(i) if said measure is not within said third predetermined acceptable range, determine and substitute a new value for said inflation rate and use said new value of said inflation rate to process data according to steps (b)

     4)-9), or

(ii) if said measure is within said third predetermined acceptable range, then the value of said output inflation rate represents the inflation rate determined by said data processing system; and

(e) means for creating a portfolio of assets in accordance with said inflation rate determined by said data processing system.

7. A data processing system as claimed in claim 4 wherein computer processor is operable under control of said computer program to carry out the following additional step:

9) determines an output risk measure for each of said assets by, for each asset, regressing said plurality of simulated asset returns against said plurality of simulated index returns.

8. A data processing system as claimed in claim 4 wherein said initial cash flows have been determined up to a predetermined and specific terminal date and wherein at least one of said plurality of assets has value beyond the said terminal date, said computer processor operable under control of said computer program to carry out the following additional steps:

9) processing said data corresponding to said set of economic variables and said data corresponding to said set of asset-specific variables to determine an initial value for each of said plurality of assets and processing said plurality of sets of said alternate data to determine a plurality of alternate values for each of said plurality of assets; and

10) determining the difference between two ratios wherein;

(i) said first ratio is a market value of said asset at said terminal date divided by a book value of said asset at said terminal date, and

(ii) said second ratio is said asset'"'"'s market value at a date prior to said terminal date divided by said asset'"'"'s book value at said date prior to said terminal date, to determine whether said difference is within a second predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said second predetermined acceptable range, determine and substitute a now value for said market value at said terminal date and use said new value of said market value to process data according to steps (b)

     4)-10), or

(ii) if said difference is within said second predetermined acceptable range, then the value of said output risk measures represent the risk measures determined by said data processing system.

9. A data processing system as claimed in claim 4 wherein at least one of said plurality of assets has debt and includes an asset-specific variable of an input default risk premium for said asset'"'"'s debt, and wherein said computer processor is operable under control of said computer program to carry our the following additional steps:

system further comprising;

9) determining a default risk premium corresponding to said asset with debt;

10) determining a difference between said input default risk premium and the default risk premium to determine whether said difference is within a second predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said second predetermined acceptable range, determine and substitute a new value for said initial default risk premium and use said value of said default risk premium to process data according to steps (b)

     4)-9), or

(ii) if said difference is within said predetermined acceptable range, then the value of said default risk premium represents the default risk premium determined by said data processing system;

(c) means for creating a portfolio of assets in accordance with said default risk premium determined by said data processing system.

10. A data processing system, as claimed in claim 5 wherein for a first set of at least one of said plurality of assets there is a first risk premium which corresponds to the risk premium determined in step 9) and for a second set of at least one other of said plurality of assets a second risk premium the value of which is input, and wherein said computer processor is operable under control of said computer program to carry our the following additional steps:

10) determining the risk measure of said second set of assets with respect to said first set of assets;

11) determining a ratio of said second risk premium and said first risk premium to determine whether the difference between said ratio and said risk measure determined in step

     10) is within a third predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said third predetermined acceptable range, determine and substitute a new value for said second risk premium and use said new value of said second risk premium to process data in accordance with steps (b)

     4)-11), or

(ii) if said difference is within said third predetermined acceptable range, then the value of said second risk premium represents the risk premium determined by said data processing system;

(d) means for creating a portfolio of assets in accordance with said second risk premium determined by said data processing system.

12. A data processing system for providing an indication of an output risk measure using jointly determined risk measures for a plurality of assets comprising:

(a) a computer processor including;

1) a first storage device for storing a computer program;

2) a second storage device for storing data corresponding to a plurality of variables, including;

(i) data corresponding to a set of economic variables including a risk premium, and

(ii) for each asset, data corresponding to a set of asset-specific variables including an input risk measure;

3) a central processing unit for processing data stored in said second storage device in accordance with said computer program stored in said first storage device;

4) an input device operable for entering said data for storage in said second storage device, and

5) an output device operable to provide an output of the results of said central processing unit;

(b) said computer processor operable under control of said computer program to carry out the following steps;

1) processing said data corresponding to said set of economic variables and said data corresponding to said set of asset-specific variables to determine initial cash flows for each of said plurality of assets;

2) generating alternate data corresponding to said plurality of economic and asset-specific variables;

3) processing said alternate data to determine corresponding alternate cash flows for each of said plurality of assets;

4) processing said data corresponding to said set of economic variables, said data corresponding to said set of asset-specific variables and said initial cash flows to determine an initial value for each of said plurality of assets and processing said alternate data and said alternate cash flows to determine an alternate value for each of said plurality of assets;

5) processing said initial values and said alternate values to determine a simulated asset return for each of said assets;

6) processing at least one of said initial values and at least one of said alternate values to determine a simulated index return;

7) jointly processing said simulated asset return and said simulated index return to determine said output risk measure for each of said assets; and

8) using an iterative converging process, comparing a value of said input risk measures and said output risk measures to determine whether said output risk measures are within a first predetermined acceptable range, and in response thereto either;

(i) if at least one said output risk measure is not within said first predetermined acceptable range, determine and substitute a new value for said input risk measure and use said new value for said input risk measure to process data according to steps (b)

     1)-8), or

(ii) if said output risk measures are within said first predetermined acceptable range, then provide an indication of said output risk measure on said output device.

13. A data processing system as claimed in claim 12, wherein at least one of said plurality of assets has a known market value, and wherein said computer processor is operable under control of said computer program to carry our the following additional step:

9) determining a difference between said initial value and the known market value of at least one of said assets to determine whether said difference is within second predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said second predetermined acceptable range, determine and substitute a new value for said risk premium and use said new value of said risk premium to process data according to steps (b)

     1)-9), or

(ii) if said difference is within said second predetermined acceptable range, then the value of said output risk premium represents the risk premium determined by said data processing system; and

(d) means for creating a portfolio of assets in accordance with said risk premium determined by said data processing system.

14. A data processing system as claimed in claim 12 wherein at least two of said plurality of assets have a known market value, and wherein said economic variables further includes an inflation rate, and wherein said computer processor is operable under control of said computer program to carry out the following additional steps:

9) processing said data corresponding to said set of economic variables, including said inflation rate, and said data corresponding to said set of asset-specific variables to determine an initial value for each of said plurality of assets and processing said alternate data to determine an alternate value for each of said plurality of assets; and

10) determining a measure of a differences between the initial value and the respective known market value of at least two of said assets to determine whether said measure is within a third predetermined acceptable range, and in response thereto either;

(i) if said measure is not within said third predetermined acceptable range, determine and substitute a new value for said inflation rate and use said new value of said inflation rate to process data according to steps (b)

     1)-10), or

(ii) if said measure is within said third predetermined acceptable range, then the value of said output inflation rate represents the inflation rate determined by said data processing system; and

(e) means for creating a portfolio of assets in accordance with said inflation rate determined by said data processing system.

22. A data processing system as claimed in claim 12 wherein said initial cash flows have been determined up to a predetermined and specific terminal date and wherein at least one of said plurality of assets has value beyond the said terminal date, said computer processor operable under control of said computer program to carry out the following additional steps:

9) processing said data corresponding to said set of economic variables and said data corresponding to said set of asset-specific variables to determine an initial value for each of said plurality of assets and processing said plurality of sets of said alternate data to determine a plurality of alternate values for each of said plurality of assets; and

10) determining a difference between two ratios wherein;

(i) said first ratio is a market value of said asset at said terminal date divided by a book value of said asset at said terminal date, and

(ii) said second ratio is said asset'"'"'s market value at a date prior to said terminal date divided by said asset'"'"'s book value at said date prior to said terminal date, to determine whether said difference is within a second predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said second predetermined acceptable range, determine and substitute a new value for said market value at said terminal date and use said new value of said market value to process data according to steps (b)

     1)-10), or

(ii) if said difference is within said second predetermined acceptable range, then the value of said output risk measures represent the risk measures determined by said data processing system.

15. A data processing system for providing an indication of an output risk measure using jointly determined risk measures for a plurality of assets comprising:

(a) a computer processor including;

1) a first storage device for storing a computer program;

2) a second storage device for storing data corresponding to a plurality of variables, including;

(i) data corresponding to a set of economic variables including a risk premium, and

(ii) for each asset, data corresponding to a set of asset-specific variables including an input risk measure;

3) a central processing unit for processing data stored in said second storage device in accordance with said computer program stored in said first storage device;

4) an input device operable for entering said data for storage in said second storage device, and

5) an output device operable to provide an output of the results of said central processing unit;

(b) said computer processor operable under control of said computer program to carry out the following steps;

1) processing said data corresponding to said set of economic variables and said data corresponding to said set of asset-specific variables to determine initial cash flows for each of said plurality of assets;

2) generating a plurality of sets of alternate data, each set of which corresponds to said plurality of economic and asset-specific variables;

3) processing said plurality of sets of alternate data to determine a corresponding plurality of sets of alternate cash flows for each of said plurality of assets;

4) processing said data corresponding to said set of economic variables, said data corresponding to said set of asset-specific variables and said initial cash flows to determine an initial value for each of said plurality of assets and processing said plurality of sets of alternate data and said plurality of sets of alternate cash flows to determine an alternate value for each of said plurality of assets;

5) processing said initial values and said plurality of sets of alternate values to determine a plurality of simulated asset returns for each of said assets;

6) processing at least one of said initial values and at least one of said plurality of sets of alternate values to determine a plurality of simulated index returns;

7) jointly processing said plurality of simulated asset returns and said plurality of simulated index returns to determine said output risk measure for each of said assets; and

8) using an iterative converging process, comparing a value of said input risk measures and said output risk measures to determine whether said output risk measures are within a first predetermined acceptable range, and in response thereto either;

(i) if at least one said output risk measure is not within said first predetermined acceptable range, determine and substitute a new value for said input risk measure and use said new value for said input risk measure to process data according to steps (b)

     1)-8), or

(ii) if said output risk measures are within said first predetermined acceptable range, then provide an indication of said output risk measure on said output device.

16. A data processing system as claimed in claim 15, wherein at least one of said plurality of assets has a known market value, and wherein said computer processor is operable under control of said computer program to carry our the following additional step:

9) determining a difference between said initial value and the known market value of at least one of said assets to determine whether said difference is within second predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said second predetermined acceptable range, determine and substitute a new value for said risk premium and use said new value of said risk premium to process data according to steps (b)

     1)-9), or

(ii) if said difference is within said second predetermined acceptable range, then the value of said output risk premium represents the risk premium determined by said data processing system; and

(d) means for creating a portfolio of assets in accordance with said risk premium determined by said data processing system.

17. A data processing system as claimed in claim 15 wherein at least two of said plurality of assets have a known market value, and wherein said economic variables further includes an inflation rate, and wherein said computer processor is operable under control of said computer program to carry out the following additional steps:

9) processing said data corresponding to said set of economic variables, including said inflation rate, and said data corresponding to said set of asset-specific variables to determine an initial value for each of said plurality of assets and processing said plurality of sets of alternate data to determine a plurality of alternate values for each of said plurality of assets; and

10) determining a measure of a differences between the initial value and the respective known market value of at least two of said assets to determine whether said measure is within a third predetermined acceptable range, and in response thereto either;

(i) if said measure is not within said third predetermined acceptable range, determine and substitute a new value for said inflation rate and use said new value of said inflation rate to process data according to steps (b)

     1)-9), or

(ii) if said measure is within said third predetermined acceptable range, then the value of said output inflation rate represents the inflation rate determined by said data processing system; and

(e) means for creating a portfolio of assets in accordance with said inflation rate determined by said data processing system.

18. A data processing system as claimed in claim 15 wherein computer processor is operable under control of said computer program to carry out the following additional step:

9) determines an output risk measure for each of said assets by, for each asset, regressing said plurality of simulated asset returns against said plurality of simulated index returns.

19. A data processing system as claimed in claim 15 wherein said initial cash flows have been determined up to a predetermined and specific terminal date and wherein at least one of said plurality of assets has value beyond the said terminal date, said computer processor operable under control of said computer program to carry out the following additional steps:

9) processing said data corresponding to said set of economic variables and said data corresponding to said set of asset-specific variables to determine an initial value for each of said plurality of assets and processing said plurality of sets of said alternate data to determine a plurality of alternate values for each of said plurality of assets; and

10) determining a difference between two ratios wherein;

(i) said first ratio is a market value of said asset at said terminal date divided by a book value of said asset at said terminal date, and

said second ratio is said asset'"'"'s market value at a date prior to said terminal date divided by said asset'"'"'s book value at said date prior to said terminal date, to determine whether said difference is within a second predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said second predetermined acceptable range, determine and substitute a new value for said market value at said terminal date and use said new value of said market value to process data according to steps (b)

     1)-10), or

(ii) if said difference is within said second predetermined acceptable range, then the value of said output risk measures represent the risk measures determined by said data processing system.

20. A data processing system as claimed in claim 15 wherein at least one of said plurality of assets has debt and includes an asset-specific variable of an input default risk premium for said asset'"'"'s debt, and wherein said computer processor is operable under control of said computer program to carry our the following additional steps:

system further comprising;

9) determining a default risk premium corresponding to said asset with debt;

10) determining a difference between said input default risk premium and the default risk premium to determine whether said difference is within a second predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said second predetermined acceptable range, determine and substitute a new value for said initial default risk premium and use said value of said default risk premium to process data according to steps (b)

     1)-9), or

(ii) if said difference is within said predetermined acceptable range, then the value of said default risk premium represents the default risk premium determined by said data processing system;

(c) means for creating a portfolio of assets in accordance with said default risk premium determined by said data processing system.

21. A data processing system, as claimed in claim 16 wherein for a first set of at least one of said plurality of assets there is a first risk premium which corresponds to the risk premium determined in step 9) and for a second set of at least one other of said plurality of assets a second risk premium the value of which is input, and wherein said computer processor is operable under control of said computer program to carry our the following additional steps:

10) determining the risk measure of said second set of assets with respect to said first set of assets;

11) determining a ratio of said second risk premium and said first risk premium to determine whether the difference between said ratio and said risk measure determined in step

     10) is within a third predetermined acceptable range, and in response thereto either;

(i) if said difference is not within said third predetermined acceptable range, determine and substitute a new value for said second risk premium and use said new value of said second risk premium to process data in accordance with steps (b)

     1)-11), or

(ii) if said difference is within said third predetermined acceptable range, then the value of said second risk premium represents the risk premium determined by said data processing system;

(d) means for creating said portfolio of assets in accordance with said second risk premium determined by said data processing system.