Method and system for computing path dependent probabilities of attaining financial goals

• US 7,031,935 B1
• Filed: 07/31/2000
• Issued: 04/18/2006
• Est. Priority Date: 07/31/2000
• Status: Expired due to Term

• Current Assignee: JP Morgan Advisory Services Incorporated (JP Morgan Chase & Co)
• Original Assignee: JP Morgan Advisory Services Incorporated (JP Morgan Chase & Co)
• Inventors: Chhabra, Ashvin Bonafede, Zaharoff, Alexander G.
• Primary Examiner(s): Poinvil, Frantzy
• Application Number:
  US09/629,589
• Time in Patent Office: 2,087 Days
• Field of Search: 705 35- 41
• US Class Current: 705/36.00T
• 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
• CPC Class Codes: G06Q 40/10 Tax strategies

Abstract

A method and system for computing the probability of attaining one or multiple financial goals is disclosed. Each goal is analyzed and reduced to a series of cash flows. A threshold criterion of success is established. A plurality of paths are generated. Each path is checked on the basis of the success criterion established earlier and those that do not meet the success criterion are considered failures. The probability of success is a function of the paths that are not failures.

Claims

1. A method, with the aid of a digital computer, of determining the probability a user will achieve at least one financial goal, comprising:

the computer identifying a set of assets for said user, said assets associated with a market value;

the computer establishing a criterion for success for said user, the criterion for success providing at least one predetermined market value reference associated with at least one period;

the computer simulating a plurality of market scenarios on said assets, each said scenario adjusting said market value of said assets for a plurality of selected periods;

the computer applying predetermined cash outflows for each of said plurality of periods for each said plurality of market scenarios;

the computer determining for at least one second period, for each said scenario, whether said market value during said at least one second period satisfies said criterion for success associated with said period; and

the computer eliminating any scenario where said market value does not satisfy said criterion for success during said second period.

2. The method of claim 1, further comprising:

the computer calculating the probability said user will achieve said at least one financial goal, said calculated probability being a function of the number of non-eliminated simulated market scenarios that satisfy said criterion for success.

3. The method of claim 2 wherein said at least one second period comprises each of said first plurality of periods.

4. The method of claim 2 wherein said at least one second period comprise a predetermined number of periods of said first plurality of periods, whereby periods which do not satisfy said success criterion more than said predetermined number of periods before a final period do not decrease said calculated probability.

5. The method of claim 2 wherein said calculated probability comprises a decaying function.

6. The method of claim 5 wherein said calculated probability comprises a decaying function based on a predetermined set of periods.

7. The method of claim 1 further comprising:

the computer computing an expected distribution of wealth based on said plurality of scenarios.

8. The method of claim 1 further comprising:

the computer categorizing said assets by asset type, said categorization creating a plurality of asset groups, said simulation of market scenarios being applied on an asset group basis, whereby all assets within a group are treated identically.

9. A method, with the aid of a digital computer, of determining the probability that a financial goal expressed as a cash outflow will be met, comprising:

(a) the computer identifying a set of assets, said assets associated with a market value;

(b) the computer establishing a criterion for success, said criterion for success associated with a plurality of cash outflows over a plurality of periods;

(c) the computer simulating a plurality of market scenarios on said assets, each said scenario adjusting said asset market value of said assets for each said period;

(d) the computer eliminating a scenario if a corresponding criterion for success is not met during a predetermined number of said plurality of said periods; and

(e) the computer calculating the probability said criterion for success will be satisfied by reference to any remaining non-eliminated scenarios.

10. The method of claim 9, wherein said criterion for success is an absolute criterion.

11. The method of claim 10, wherein said criterion for success has a memory.

12. The method of claim 10, wherein said criterion for success has a decaying memory.

13. The method of claim 9, wherein said criterion for success is a relative criterion.

14. A computer system for determining the probability that a financial goal expressed as a cash outflow will be met, comprising:

(a) a database including;

(i) a set of assets associated with a user, said assets associated with a market value; and

(ii) a criterion for success associated with said user, said criterion for success associated with a plurality of periods; and

(b) a programmed processor configured to;

(i) simulate a plurality of market scenarios on said assets, each said scenario adjusting said market value of said assets for each said period;

(ii) determine whether a market value during a period satisfies said criterion for success associated with said period;

(iii) eliminate any scenario if the market value does not satisfy said criterion for success during a predetermined number of said periods; and

(v) determining the probability that a particular cash flow will be met by reference to any remaining non-eliminated scenarios.

15. The computer system of claim 14 wherein,

said database includes a plurality of financial goals associated with said user;

said processor is configured to convert said plurality of financial goals into cash flows; and

said simulation of a plurality of market scenarios on said assets includes applying said cash flows to said adjusted market values during each corresponding period.

16. The computer system of claim 14 wherein said criterion for success varies for each said period of said plurality of periods.

17. The computer system claim 14 wherein said criterion for success varies for each said period of said plurality of periods associated with said criterion.

18. The computer system claim 14 wherein said processor is further configured to:

receive said cash outflow associated with said plurality of financial goals; and

determine the statistical probability that said cash outflows will be satisfied on a periodic basis.