Methods and systems for valuing investments, budgets and decisions

• US 8,401,953 B2
• Filed: 05/22/2009
• Issued: 03/19/2013
• Est. Priority Date: 07/13/2005
• Status: Active Grant

• Current Assignee: Antony Mott
• Original Assignee: Antony Mott
• Inventors: Mott, Antony
• Primary Examiner(s): Felten, Daniel S
• Assistant Examiner(s): AMELUNXEN, BARBARA J
• Application Number:
  US12/470,797
• Publication Number:
  US 20090228401A1
• Time in Patent Office: 1,397 Days
• Field of Search: 705/4, 705/7, 705/35, 705/36.R, 705/37, 705/38, 705/7.25, 705/36, 705/36.T, 700/100, 703/20, 345/582, 345/810
• US Class Current: 705/37
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• 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 computer implemented method of making an investment value decision through modeling an investment'"'"'s expected cash flows, each expected cash flow represented on the display device of a computer as a graphical three-dimensional joint-probability volume encapsulating uncertainties of both time and magnitude, making it unnecessary to consider investment risk before choosing discount rates, allowing a user to discount all cash flows using only the “risk-free” rate to produce a net present value probability distribution rather than single-number estimate, and displaying the resulting net present value probability distribution as a graphical two-dimensional net present value probability area on the display device of a computer, wherein one dimension represents magnitude and the other dimension represents probability.

Claims

1. A computer implemented method of making an investment value decision through modeling the decision, the method comprising the steps of:

a) providing a first investment value decision for consideration on a computer by a user, wherein the first investment value decision is comprised of at least one investment having at least one expected future cash flow, wherein each expected future cash flow will eventually take just one value from a distribution of values and the distribution'"'"'s shape depends on the risks that influence the expected future cash flow;

b) providing a computer having at least an input device and display device;

c) accepting input defining a library of a plurality of images in the input device of the computer wherein each of the images is a pre-calculated graphical representation of a probability distribution function;

d) displaying a plurality of images from the library to provide displayed images on the display device of the computer;

e) displaying a three-dimensional view with axes representing magnitude, probability and time on the display device of the computer;

f) accepting input corresponding to a selection in an input device of the computer, for each expected future cash flow, of one of the displayed images for at least one particular times to represent uncertainty of magnitude, to provide at least one magnitude distribution for each expected future cash flow;

g) accepting input corresponding to selection in an input device of a computer, for each expected future cash flow, of one of the displayed images for one or more particular magnitudes to represent uncertainty of timing, to provide at least one timing distribution for each expected future cash flow;

h) combining by the computer, for each expected future cash flow, the at least one magnitude distribution and the at least one timing distribution into a joint-probability distribution volume function wherein each joint-probability distribution volume function accounts for an expected future cash flow'"'"'s uncertainty of time and its uncertainty of magnitude;

i) displaying the at least one joint-probability distribution volume function on the display device of the computer as at least one graphical three-dimensional probability texture with an axis representing magnitude and an axis representing probability and an axis representing time, wherein both the uncertainty of time and the uncertainty of magnitude for each expected future cash flow are encapsulated by the at least one graphical three-dimensional probability texture;

j) accepting input representing values that define the relationship between possible future cash flows comprising statistical properties polymodes, kurtosis and codependence in the input device of the computer;

k) accepting input representing a risk-free rate to be used for discounting in the input device of the computer;

l) accepting input representing a time and date to provide a present time in the input device of the computer;

m) discounting by the computer, using the risk-free rate, all magnitudes comprising each joint-probability distribution volume function, to the present time to produce for each joint-probability distribution volume function a corresponding interim net present value probability distribution;

n) summing by the computer each interim net present value probability distribution to account for a relationship between possible future cash flows to provide a resulting net present value probability distribution representing the range and likelihood of possible net present values of the investment; and

o) displaying the resulting net present value probability distribution as a graphical two-dimensional net present value probability area on the display device of the computer, wherein one dimension represents magnitude and the other dimension represents probability, and the graphical two-dimensional net present value probability area is positioned at the present time.

2. A method as in claim 1, further comprising the step of:

accepting input representing modifications to any user-input in the input device of the computer by repeating the steps of claim 1;

f) accepting input corresponding to a selection in an input device of the computer, for each expected future cash flow, of one of the displayed images for at least one particular times to represent uncertainty of magnitude, to provide at least one magnitude distribution for each expected future cash flow;

g) accepting input corresponding to selection in an input device of a computer, for each expected future cash flow, of one of the displayed images for one or more particular magnitudes to represent uncertainty of timing, to provide at least one timing distribution for each expected future cash flow;

h) combining by the computer, for each expected future cash flow, the at least one magnitude distribution and the at least one timing distribution into a joint-probability distribution volume function wherein each joint-probability distribution volume function accounts for an expected future cash flow'"'"'s uncertainty of time and its uncertainty of magnitude;

i) displaying the at least one joint-probability distribution volume function on the display device of the computer as at least one graphical three-dimensional probability texture with an axis representing magnitude and an axis representing probability and an axis representing time, wherein both the uncertainty of time and the uncertainty of magnitude for each expected future cash flow are encapsulated by the at least one graphical three-dimensional probability texture;

j) accepting input representing values that define the relationship between possible future cash flows comprising statistical properties polymodes, kurtosis and codependence in the input device of the computer;

k) accepting input representing a risk-free rate to be used for discounting in the input device of the computer;

l) accepting input representing a time and date to provide a present time in the input device of the computer;

m) discounting by the computer, using the risk-free rate, all magnitudes comprising each joint-probability distribution volume function, to the present time to produce for each joint-probability distribution volume function a corresponding interim net present value probability distribution;

n) summing by the computer each interim net present value probability distribution to account for a relationship between possible future cash flows to provide a resulting net present value probability distribution representing the range and likelihood of possible net present values of the investment; and

o) displaying the resulting net present value probability distribution as a graphical two-dimensional net present value probability area on the display device of the computer, wherein one dimension represents magnitude and the other dimension represents probability, and the graphical two-dimensional net present value probability area is positioned at the present time.

3. A method as in claim 1, wherein the step of discounting is according to an algorithm.

4. A method as in claim 3, wherein the algorithm is performed by the computer according to the following steps:

operating on one or more arrays of data by another;

transforming said data into an interim results matrix array;

sorting said interim results matrix array to provide a sorted-interim results matrix;

converting said sorted-interim results matrix array to two new arrays;

combining similar data for each array through internal operations; and

producing two final results arrays; and

plotting the net-present value distribution according to said two final results arrays.

5. A method as in claim 1, further comprising the steps of:

providing a plurality of investment value decisions for consideration and comparison and repeating the steps of claims 1 through 4.

6. A method as in claim 1, wherein at least two of the plurality of images are images according to a category.

7. A method as in claim 1, wherein at least one of the plurality of images is a standard bell curve.

8. A method as in claim 1, wherein the expected future cash flows are comprised of at least one positive expected future cash flow and at least one negative expected future cash flow.