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Modeling financial instruments using bid and ask prices

DC
  • US 8,090,644 B2
  • Filed: 04/06/2009
  • Issued: 01/03/2012
  • Est. Priority Date: 10/31/2005
  • Status: Expired due to Fees
First Claim
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1. A method for modeling an investment significant parameter of a financial instrument, using a computer, the method comprising the steps of:

  • a) providing at least one series of historical bid prices of the financial instrument or historical ask prices of the financial instrument as training data;

    b) selecting a financial model type having at least one variable parameter for matching the selected financial model type to the behavior of the financial instrument;

    c) initializing the at least one variable parameter of the selected financial model type; and

    d) estimating the at least one variable parameter by applying the training data to the initialized financial model type with the computer to model the investment significant parameter of the financial instrument, wherein step (d) includes the steps of;

    d1) calculating a series of historical values of the investment significant parameter based on the at least one series of historical bid prices or historical ask prices provided in step (a);

    d2) using the financial model type selected in step (b) to calculate a predicted investment significant parameter, the calculation based on a set of historical quotes having a predetermined quantity of consecutive historical quotes of one of the at least one series of historical bid prices or historical ask prices provided in step (a);

    d3) repeating step (d2) for each set of historical quotes to calculate a plurality of predicted investment significant parameters;

    d4) comparing the plurality of predicted investment significant parameters to the series of historical values of the investment significant parameter;

    d5) varying the at least one variable parameter of the selected financial model type based on differences between the plurality of predicted investment significant parameters and the series of historical values of the investment significant parameter; and

    d6) repeating steps (d1), (d2), (d3), (d4), (d5), and (d6) until the plurality of predicted investment significant parameters calculated in steps (d2) and (d3) substantially correspond to the series of historical values of the investment significant parameter calculated in step (d1).

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