Estimation method and system for complex securities using low-discrepancy deterministic sequences

• US 5,940,810 A
• Filed: 07/30/1997
• Issued: 08/17/1999
• Est. Priority Date: 08/04/1994
• Status: Expired due to Term

• Current Assignee: Trustees Of Columbia University In The City Of New York (Columbia University)
• Original Assignee: Trustees Of Columbia University In The City Of New York (Columbia University)
• Inventors: Paskov, Spassimir, Vanderhoof, Irwin F., Traub, Joseph F.
• Primary Examiner(s): Weinhardt, Robert A.
• Application Number:
  US08/902,921
• Time in Patent Office: 748 Days
• Field of Search: 705/35, 705/36, 705/37, 705/8
• US Class Current: 705/36.00R
• 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
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

In securities trading, in setting the initial offering price of a financial instrument, or in later revaluation as financial parameters such as interest rates may change, an estimate of the value of the instrument may be represented as a multi-dimensional integral. For evaluation of the integral, numerical integration is preferred with the integrand being sampled at deterministic points having a low-discrepancy property. The technique produces approximate values at significant computational savings and with greater reliability as compared with the Monte Carlo technique.

Claims

1. A method for one of buying, holding and selling a complex security, comprising:

(i) deriving a multivariate integrand which, when integrated over a domain of integration having at least 50 dimensions, represents an estimated value of the security;

(ii) calculating, by computer, integrand values at points in the domain of integration which are obtained from a low-discrepancy deterministic sequence;

(iii) combining the integrand values, by computer, to approximate the estimated value; and

(iv) effecting, based on the estimated value, one of buying, holding and selling the security.

2. The method of claim 1, wherein combining the integrand values comprises averaging.

3. The method of claim 1, wherein the number of integrand values is predetermined.

4. The method of claim 1, wherein the number of integrand values is determined automatically.

5. The method of claim 1, further comprising allocating integrand evaluations among a plurality of processors.

6. The method of claim 1, wherein the low-discrepancy deterministic sequence comprises Sobol points.

7. The method of claim 1, wherein the low-discrepancy deterministic sequence comprises Halton points.

8. The method of claim 1, wherein the low-discrepancy deterministic sequence comprises Hammersley points.

9. The method of claim 1, wherein the low-discrepancy sequence comprises hyperbolic-cross points.

10. The method of claim 1, wherein the security is a derivative instrument.

11. The method of claim 1, wherein the security is a financial security.

12. A method for selling a complex security, comprising:

(i) deriving a multivariate integrand which, when integrated over a domain of integration having at least 50 dimensions, represents an estimated value of the security;

(ii) calculating, by computer, integrand values at points in the domain of integration which are obtained from a low-discrepancy deterministic sequence;

(iii) combining the integrand values, by computer, to approximate the estimated value; and

(iv) selling the security at an offering price which is not less than the estimated value.

13. The method of claim 12, wherein combining the integrand values comprises averaging.

14. The method of claim 12, wherein the number of integrand values is predetermined.

15. The method of claim 12, wherein the number of integrand values is determined automatically.

16. The method of claim 12, further comprising allocating integrand evaluations among a plurality of processors.

17. The method of claim 12, wherein the low-discrepancy deterministic sequence comprises Sobol points.

18. The method of claim 12, wherein the low-discrepancy deterministic sequence comprises Halton points.

19. The method of claim 12, wherein the low-discrepancy deterministic sequence comprises Hammersley points.

20. The method of claim 12, wherein the low-discrepancy sequence comprises hyperbolic-cross points.

21. The method of claim 12, wherein the security is a derivative instrument.

22. The method of claim 12, wherein the security is a financial security.