Computer system and methods for allocation of the returns of a portfolio among a plurality of investors with different risk tolerance levels and allocation of returns from an efficient portfolio

• US 6,282,520 B1
• Filed: 09/09/1998
• Issued: 08/28/2001
• Est. Priority Date: 09/09/1998
• Status: Expired due to Term

• Current Assignee: Metropolitan Life Insurance Company (MetLife Incorporated)
• Original Assignee: Metropolitan Life Insurance Company (MetLife Incorporated)
• Inventors: Schirripa, Felix
• Primary Examiner(s): Hafiz, Tariq R.
• Assistant Examiner(s): MEINECKE DIAZ, SUSANNA M
• Application Number:
  US09/150,400
• Time in Patent Office: 1,084 Days
• Field of Search: 705/36
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A method and system is presented for distributing returns from an investment portfolio to a plurality of investors with different risk tolerances as a function of the risk-return preferences of the investors. Said portfolio may correspond to a point on an efficient frontier related to the risk-return points selected by investors.

Claims

1. A computer-implemented method for distributing returns from an investment portfolio to a plurality of participants, comprising the steps of:

forming a portfolio of assets corresponding to an operating point on an efficient frontier determined in accordance with risk-return preferences specified by the participants having varying risk-return preferences;

distributing returns from the portfolio among the participants according to an allocation function of said risk-return preferences specified by the participants.

2. The method of claim 1, wherein the operating point on the efficient frontier is a function of risk-return points selected by the participants.

3. The method of claim 1, wherein the operating point on the efficient frontier corresponds to a level of risk equal to a weighted average of risk levels selected by each participant.

4. The method of claim 1, wherein the operating point on the efficient frontier corresponds to an expected return equal to a weighted average of expected returns selected by each participant.

10. The method of claim 1, wherein the step of distributing the returns is performed by electronic funds transfer.

11. The method of claim 1, wherein the allocation function provides each participant a return that deviates from the participant'"'"'s expected return in proportion to a ratio of an expected return of the portfolio to a weighted average of expected rates of return selected by the participants.

12. The method of claim 1, wherein the allocation function provides each participant a return that deviates from the participant'"'"'s expected return in proportion to the extent that the return of the portfolio deviates from a weighted average of expected rates of return selected by the participants.

13. The method of claim 1, wherein the allocation function provides each participant a return that deviates from the participant'"'"'s expected return in proportion to the extent that the return of the portfolio deviates from the expected return of the portfolio.

14. The method of claim 1, wherein the allocation function provides each participant a return that deviates from the participant'"'"'s chosen expected return by an amount proportional to the risk level chosen by the participant.

15. The method of claim 1, wherein the allocation function provides each participant a return that deviates from the participant'"'"'s chosen expected return by an amount proportional to the expected rate of return chosen by the participant.

18. The method of claim 1, wherein each different risk-return preference corresponds to a different point on the efficient frontier.

5. A system for distributing returns from an investment portfolio among a plurality of participants comprising:

memory storage for;

storing data representative of risk-return preferences specified by each of the participants; and

a processor for;

determining a portfolio of assets corresponding to an operating point on an efficient frontier in accordance with the risk-return preferences specified by the participants having varying risk-return preferences;

determining the distribution of the returns from the portfolio to each of the participants according to an allocation function of the risk-return preferences; and

distributing the returns from the portfolio among the participants.

6. The system of claim 5, wherein the operating point on the efficient frontier is a function of risk-return preferences specified by the participants.

7. The system of claim 5, wherein the operating point on the efficient frontier corresponds to a level of risk equal to a weighted average of the risk-levels selected by each participant.

8. The system of claim 5, wherein the operating point on the efficient frontier corresponds to an expected return equal to a weighted average of expected returns selected by each participant.

9. The system of claim 5, wherein said returns are distributed as a function of risk return points chosen by the participants.

19. The system of claim 5, wherein the allocation function provides each participant a return that deviates from the participant'"'"'s expected return in proportion to a ratio of an expected return of the portfolio to a weighted average of expected rates of return selected by the participants.

20. The system of claim 5, wherein the allocation function provides each participant a return that deviates from the participant'"'"'s expected return in proportion to the extent that the return of the portfolio deviates from a weighted average of expected rates of return selected by the participants.

21. The system of claim 5, wherein the allocation function provides each participant a return that deviates from the participant'"'"'s expected return in proportion to the extent that the return of the portfolio deviates from the expected return of the portfolio.

22. The system of claim 5, wherein the allocation function provides each participant a return that deviates from the participant'"'"'s chosen expected return by an amount proportional to the risk level chosen by the participant.

23. The system of claim 5, wherein the allocation function provides each participant a return that deviates from the participant'"'"'s chosen expected return by an amount proportional to the expected rate of return chosen by the participant.

26. The system of claim 5, wherein the distribution determined by the processor is stored to be available for subsequent use.

27. The system of claim 5, wherein each different risk-return preference corresponds to a different point on the efficient frontier.

16. A method for distributing returns from an investment portfolio to a plurality of participants, comprising the steps of:

forming a portfolio of assets corresponding to an operating point on an efficient frontier; and

distributing returns from the portfolio among the participants according to an allocation function of risk-return preferences chosen by the participants;

wherein the allocation function provides each participant an expected rate of return, r_i=dμ

_i+cξ

_i, where μ

_i is the expected rate of return chosen by the i^th participant and ξ

_i is the risk level chosen by the i^th participant, and;

$d=1,\text{\hspace{1em}<br><br>}<br><br>c=\frac{R_T^e-\sum <br><br>\text{\hspace{1em}<br><br>}<br><br>b_i<br><br>{\mathrm{\mu <br><br>}}_i}{\sum <br><br>b_i<br><br>\mathrm{\xi <br><br>}},$

R_T^e is the actual return of the portfolio, and b_i is the i^th participant'"'"'s balance in the portfolio; and

the actual return, R_i, allocated to each participant is given by;

17. A method for distributing returns from an investment portfolio to a plurality of participants, comprising the steps of:

forming a portfolio of assets corresponding to an operating point on an efficient frontier; and

distributing returns from the portfolio among the participants according to an allocation function of risk-return preferences chosen by the participants;

wherein the allocation function provides each participant an expected rate of return, r_i=dμ

_i+cξ

_i, where μ

_i is the expected rate of return chosen by the i^th participant and ξ

_i is the risk level chosen by the i^th participant, and;

$d=\frac{{\stackrel{\_}{R}}_T^e}{\sum <br><br>b_i<br><br>{\mathrm{\mu <br><br>}}_i}$$c=\frac{R_T^e-{\stackrel{\_}{R}}_T^e}{\sum <br><br>b_i<br><br>\mathrm{\xi <br><br>}},$

R_T^e is the actual return of the portfolio, {overscore (R)}_T^e is the expected return of the portfolio and b_i is the i^th participant'"'"'s balance in the portfolio; and

the actual return, R_i, allocated to each participant is given by;

24. A system for distributing returns from an investment portfolio among a plurality of participants comprising:

memory storage for;

storing data representative of risk-return points selected by each of the participants; and

a processor for;

determining a portfolio of assets corresponding to an operating point on an efficient frontier;

determining the distribution of the returns from the portfolio to each of the participants according to an allocation function of the risk-return points; and

distributing the returns from the portfolio among the participants

wherein the allocation function provides each participant an expected rate of return, r_i=dμ

_i+cξ

_i, where μ

_i is the expected rate of return chosen by the i^th participant and μ

_i is the risk level chosen by the i^th participant, and;

$d=1,\text{\hspace{1em}<br><br>}<br><br>c=\frac{R_T^e-\sum <br><br>\text{\hspace{1em}<br><br>}<br><br>b_i<br><br>{\mathrm{\mu <br><br>}}_i}{\sum <br><br>b_i<br><br>\mathrm{\xi <br><br>}},$

R_T^e is the actual return of the portfolio, and b_i is the i^th participant'"'"'s balance in the portfolio; and

the actual return, R_i, allocated to each participant is given by;

25. A system for distributing returns from an investment portfolio among a plurality of participants comprising:

memory storage for;

storing data representative of risk-return points selected by each of the participants; and

a processor for;

determining a portfolio of assets corresponding to an operating point on an efficient frontier;

determining the distribution of the returns from the portfolio to each of the participants according to an allocation function of the risk-return points; and

distributing the returns from the portfolio among the participants

wherein the allocation function provides each participant an expected rate of return, r_i=dμ

_i+cξ

_i, where μ

_i is the expected rate of return chosen by the i^th participant and ξ

_i is the risk level chosen by the i^th participant, and;

$d=\frac{{\stackrel{\_}{R}}_T^e}{\sum <br><br>b_i<br><br>{\mathrm{\mu <br><br>}}_i}$$c=\frac{R_T^e-{\stackrel{\_}{R}}_T^e}{\sum <br><br>b_i<br><br>\mathrm{\xi <br><br>}},$

R_T^e is the actual return of the portfolio, {overscore (R)}_T^e is the expected return of the portfolio and b_i is the i^th participant'"'"'s balance in the portfolio; and

the actual return, R_i, allocated to each participant is given by;

28. A computer implemented method for distributing returns from each one of a plurality of investment portfolios to a respective one of a plurality of groups of participants, comprising the steps of:

forming for each group of participants a portfolio of assets corresponding to an operating point on an efficient frontier determined in accordance with risk-return preferences specified by each participant having varying risk-return preferences in the group;

distributing for each portfolio the returns from the portfolio among the participants in the group for which the portfolio was formed according to an allocation function of the risk-return preferences specified by each participant in the group.

29. The method of claim 28, wherein the operating point for each portfolio is a function of the risk-return points of the participants in the group for which the portfolio is formed.

30. The method of claim 28, wherein each group may select one of a plurality of different operating point selection functions for determining the operating point for the portfolio of the group.

31. The method of claim 28, wherein each group may select one of a plurality of efficient frontiers for which to form a portfolio of assets for the group.

32. The method of claim 28, wherein each group may select one of a plurality of allocation functions for distributing the returns of the portfolio of the group.

33. A computer implementated method for determining a distribution of returns from an efficient portfolio to a plurality of participants comprising the steps of:

specifying a risk-return preference by each participant;

selecting an allocation function in accordance with the risk-return preferences specified by each participant having varying risk-return preferences;

computing and allocating a return for each participant in accordance with the allocation function.

34. The method of claim 33, wherein the amount of the return for each investor is stored to be available for subsequent use.

35. A computer-implemented method for determining a distribution of returns from an efficient portfolio to a plurality of participants, comprising the steps of:

determining a risk level and expected rate of return for each participant; and

computing for each participant an expected rate of return, r_i=dμ

_i+cξ

_i, where μ

_i is the expected rate of return chosen by the i^th participant and ξ

_i is the risk level chosen by the i^th participant, d and c are chosen to satisfy the following equation;

$R_T^e=\underset{i}{\sum <br><br>}<br><br>{\mathrm{db}}_i<br><br>{\mathrm{\mu <br><br>}}_i+{\mathrm{cb}}_i<br><br>{\mathrm{\xi <br><br>}}_i,$

where R_T^e is the actual return of the portfolio, and b_i is the i^th participant'"'"'s balance in the portfolio; and

allocating the returns to each participant, wherein the actual return, R_i, allocated to each participant is given by;

36. The method of claim 35, wherein:

$d=1,\text{\hspace{1em}<br><br>}<br><br>c=\frac{R_T^e-\sum <br><br>\text{\hspace{1em}<br><br>}<br><br>b_i<br><br>{\mathrm{\mu <br><br>}}_i}{\sum <br><br>b_i<br><br>\mathrm{\xi <br><br>}},$

R_T^e is the actual return of the portfolio, and b_i is the i^th participant'"'"'s balance in the portfolio.

37. The method of claim 35, wherein:

$d=\frac{{\stackrel{\_}{R}}_T^e}{\sum <br><br>b_i<br><br>{\mathrm{\mu <br><br>}}_i}$$c=\frac{R_T^e-{\stackrel{\_}{R}}_T^e}{\sum <br><br>b_i<br><br>\mathrm{\xi <br><br>}},$

R_T^e is the actual return of the portfolio, {overscore (R)}_T^e is the expected return of the portfolio and b_i is the i^th participant'"'"'s balance in the portfolio.