Security pricing method and system

• US 8,335,732 B2
• Filed: 04/08/2010
• Issued: 12/18/2012
• Est. Priority Date: 05/27/2009
• Status: Expired due to Fees

• Current Assignee: Joshua Farzad Dayanim
• Original Assignee: Joshua Farzad Dayanim
• Inventors: Dayanim, Joshua Farzad
• Primary Examiner(s): Abdi, Kambiz
• Assistant Examiner(s): Ziegle, Stephanie M
• Application Number:
  US12/756,241
• Publication Number:
  US 20100306129A1
• Time in Patent Office: 985 Days
• Field of Search: 705 35- 45
• US Class Current: 705/35
• CPC Class Codes: G06Q 10/067 Enterprise or organisation modelling
• 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

A method for pricing securities or valuing assets that generates prices and related price indicators using a partial differential form of the price equation and a conservation of capital principal. Price indicators including price channel, divergence, support level, velocity, and momentum provide into the price spread and appreciation potential of a security or asset, direction and intensity of price movement, and investor sentiment. Price indicators can be used to identify, analyze, and recommend investment opportunities and to create and manage an investment portfolio.

Claims

1. A method for pricing securities such as stocks, bonds, and related indices, composites, or derivative instruments using a general-purpose computer and one or more processors comprising:

a. collecting and storing input data including historical data and optional projected data related to one or more securities;

b. implementing a security pricing tool by said processor based on a security pricing model;

c. computing by said processor a plurality of scenario prices and price indicators utilizing said input data for a plurality of time horizons for one or more securities as a function of a change in one or more factors affecting a security'"'"'s price (P) from a group comprising of earnings per share (EPS), price to earnings (PE) ratio, or combinations and variations thereof, using the price equation P=EPS*PE and its partial differential form;

Δ

P=Δ

EPS*PE₀+EPS₀*Δ

PE

 

wherein Δ

P is the expected price change, Δ

EPS and Δ

PE are measured, estimated, or projected change in earnings per share and price to earnings ratio, and EPS₀ and PE₀ are starting values for earnings per share and price to earnings ratio for an initial price point (P₀), wherein a target price is computed by adding said expected price change to said initial price, using the equation;

P_T=P₀+Δ

P

d. computing by said processor a Divergence indicator for a plurality of time horizons as a ratio of the target price spread Δ

P_T over the observed market price at elapsed time t, using the equation;

2. The method of claim 1, wherein a multiplicity of factors and corresponding aggregated or reformulated measures can be substituted in said price equation.

3. The method of claim 1, further comprising the step of computing by said processor a support ratio indicator for a plurality of time horizons using the equation:

4. The method of claim 3, further identifying by said processor a fully supported price level as the support ratio approaches 1 and the value of new investment amount approaches the change in market capitalization for a security, indicating that a stable price point is established.

5. The method of claim 3, wherein the support ratio is estimated by said processor using a multiplicity of related or aggregated factors from a group comprising of trading volume, price, number of shares outstanding, or combinations and variations thereof, where for a special case of a daily time interval new investment amount is estimated by multiplying the daily trade volume and the daily price change for a security and summing the product for each day during the elapsed time period t.

6. The method of claim 3, further computing by said processor an expected price indicator for a plurality of time horizons by adding an adjusted portion of said expected price change to said start-up price at elapsed time t or f(t), using a multiplicity of adjustment techniques using the equation:

Expected Price(t)=P₀+Δ

P*f(t)

wherein f(t) represents the adjustment factor and for a special case of linear estimation f(t)=Support Ratio (t).

7. The method of claim 3, further comprising a step of computing by said processor an event time horizon indicator Δ

T for a plurality of time horizons using a multiplicity of available regression and extrapolation techniques, taking into consideration said support ratio, elapsed time, and expected price change, or combinations and variations thereof, where for a special case of linear estimation the event time horizon is estimated using the equation;

8. The method of claim 6, further comprising a step of computing by said processor a Price Channel indicator for a plurality of time horizons as the separation between said expected price and said target price, where the Price Channel represents the expected range for price movement of a security.

9. The method of claim 1, further comprising a step of computing by said processor a Momentum indicator for a plurality of time horizons, using the equation:

Momentum(t)=±

√

{square root over (2P|Δ

P_T|)}

where Momentum represents the intensity or strength of price movement.

10. The method of claim 1, further comprising a step of computing by said processor a Money Flow indicator, measuring the aggregate amount of capital flowing into a security for a plurality of time horizons, by adding the new investment amount measured as a sum of investment gain/loss for each trade activity to the initial Money Flow Value MF₀, using the following equation, wherein N is the number of trades during an elapsed time t, s_n*Δ

P_n is the gain/loss from a single trade activity n measured as a product of the number of traded shares s_n and the difference between the sell price and the seller'"'"'s cost basis or Δ

P_n, where said Money Flow indicator is a measure of investor sentiment towards the underlying security;

11. The method of claim 10, wherein the Money Flow indicator is estimated by said processor using a multiplicity of related measures or aggregation techniques for a plurality of time horizons, where for a special case of daily measurements the Money Flow Indicators is estimated by using a product of daily trade volume and change in daily price and summing the result over the selected time period.

12. The method of claim 1, further comprising a step of computing by said processor a Liquidity indicator for a plurality of time horizons by adding the number of trades for a security and dividing the result by the total number of outstanding shares in a security, wherein said Liquidity indicator represents a normalized ratio of trading activity indicating the ease of trading in a security and the competitiveness of bid and ask prices, where a low Liquidity indicator value indicates a poorly traded security with a high level of associated liquidity risk, and where the inverse value represents a measure of share turn-over rate.

13. The method of claim 1, further comprising a step of computing by said processor the cumulative effect of multiple stand-alone or overlapping changes in said factors affecting a security'"'"'s price through a superposition technique by combining said prices and price indicators.

14. The method in claim 13, wherein the superposition technique utilizes a range of available operators and weighting factors, comprising of one or more of addition, subtraction, linear or non-linear transformations, and time or value based weighting factors, or combinations and variations thereof.

15. The method in claim 1, comprising a step of providing access by said processor to one or more said security price and related price indicators via a user or client system interface, wherein the user or client system can input optional parameters, save, retrieve or view one or more said prices and price indicators, or interact with the security pricing tool.

16. The method of claim 1 further comprising steps of dynamically assessing the performance of one or more securities by said processor:

a. interacting with said security pricing tool and receiving one or more said input data, target price, and price indicators;

b. implementing a decision support tool by said processor;

c. computing by said processor a plurality of investment rules and scenarios utilizing said input data, target price, and price indicators for a plurality of time horizons, generating investment opportunities or recommendations, creating and managing an investment portfolio for select securities, assessing and tracking security performance, or combinations and variations thereof;

d. implementing a user or client system interface by said processor to input optional parameters, access said investment opportunities or recommendations, display or save said investment profile and portfolio, analyze or track security performance for a plurality of time horizons, or variations and combinations thereof.

17. The method in claim 16, further identifying, developing, or implementing security selection rules using said processor for a multiplicity of investment styles, wherein a multiplicity of evaluation and filtering criteria is used to identify and recommend select securities for each investment style by using threshold, frequency, and range values or filters for said input data, target price, and price indicators.

19. The method in claim 17, comprising a further step of implementing by said processor a user or client system interface for creating and managing a portfolio of securities, tracking price movement and performance of said security selection, modifying selection list, managing cash, simulating investment selection, performing trade activity, analyzing gain/loss over a multitude of time horizons, or variations and combinations thereof.

18. A security pricing system comprising:

one or more processors,

an input-output device,

a memory device containing code when executed by said processor causes said processor to implement steps comprising;

a. collecting and storing input data including historical data and optional projected data related to one or more securities;

b. implementing a security pricing tool based on a security pricing model;

c. computing by said processor a plurality of scenario prices and price indicators utilizing said input data for a plurality of time horizons as a function of a change in one or more factors affecting a security'"'"'s price (P) from a group comprising of earnings per share (EPS), price to earnings (PE) ratio, or combinations and variations thereof, using the price equation P=EPS*PE and its partial differential form;

Δ

P=Δ

EPS*PE₀+EPS₀*Δ

PE

 

wherein Δ

P is the expected price change, Δ

EPS and Δ

PE are measured, estimated, or projected change in earnings per share and price to earnings ratio, and EPS₀ and PE₀ are starting values for earnings per share and price to earnings ratio for an initial price point (P₀), wherein a target price is computed by adding said expected price change to said initial price, using the equation;

P_T=P₀+Δ

P

e. computing by said processor a Divergence indicator for a plurality of time horizons as a ratio of the target price spread Δ

P_T over the observed market price at elapsed time t, using the equation;

20. A method for pricing goods or services or valuing assets using a general-purpose computer and one or more processors comprising:

a) collecting and storing input data including historical data and optional projected data;

b) implementing a pricing tool by said processor;

c) computing by said processor a plurality of scenario prices, price indicators, or asset valuations utilizing said input data for a plurality of time horizons as a function of a change in at least one of the factors affecting price from a group comprising of earnings, price to earnings ratio, and combinations or variations thereof using the price equation P=E*PE and its partial differential form Δ

P·

=Δ

E*PE₀+E₀*Δ

PE;

wherein earnings (E) and price to earnings ratio (PE) indicate estimated or projected profit and price to profit multiplier;

wherein a target price or valuation is computed by adding said expected price change to said initial price, using the equationP_T=P₀+Δ

P;

d) computing by said processor a Divergence indicator for a plurality of time horizons as a ratio of the target price spread Δ

P_T over the observed market price at elapsed time t, using the equation Divergence (t)=Δ

P_T/P wherein Δ

P_T=P_T−

P, with P_T as said target price and P as the market price at elapsed time t, where Divergence represents the expected gain/loss opportunity for a security;

e) computing by said processor a Velocity indicator for a plurality of time horizons, using the equation Velocity (t)=±

√

{square root over (2|Δ

P_T|/P)} wherein vertical bars represent an absolute value of said target price spread at elapsed time t, and the direction of movement is indicated with a choice of sign, where Velocity represents the anticipated direction and speed of price movement; and

f) displaying or retrieving one or more said prices and price indicators via a provided user or client system interface.

21. The method of claim 20, wherein a multiplicity of factors and corresponding aggregated or reformulated measures can be substituted in said price equation.