Systems and methods for implementing an interest-bearing instrument
First Claim
1. A computer-implemented apparatus for facilitating issuance of an interest-bearing instrument, comprising:
- a memory; and
a computer processor in communication with the memory, the computer processor executing functions comprising;
(a) receiving data corresponding to market factors;
(b) storing the received market factors data in a database;
(c) selecting an option model;
(d) receiving data corresponding to a regression model;
(e) receiving data corresponding to a prepayment model;
(f) receiving data corresponding to an interest rate term structure model;
(g) receiving data corresponding to a default term structure;
(h) receiving data corresponding to transaction indicative details associated with the interest bearing instrument to be issued;
(i) normalizing the received and stored data;
(j) calculating prepayment probabilities based on an output of the regression model and an output of the prepayment model;
(k) calculating a forward term structure of at least one benchmark rate based on the interest rate term structure model;
(l) calculating discount factors to be applied to at least one cashflow associated with the interest bearing instrument to be issued;
(m) calculating an option value from the option model using the prepayment probabilities, the forward term structure, the discount factors, and the default term structure;
(n) calculating a principal modification value based on the option value, wherein the principal modification value modifies a principal amount associated with the interest bearing instrument to be issued;
(o) calculating a risk capital savings using the following equation;
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Accused Products
Abstract
Systems and methods are provided that allow a financial instrument to be structured so that the underlying borrowed principal is callable, putable, or both. In one example, a Range Accrual Mortgage is structured so that the underlying borrowed principal is a mortgage that is callable, putable, or both by embedding into the loan structure a rate put option, and by permitting correlative adjustments to the outstanding loan principal. The invention lends symmetry to the interest rate behavior of certain borrowings by making explicit the pricing and market value of options that were previously only implicit in the borrowing structure. For example, a mortgage in accordance with the invention should provide incentives for either the homeowner or the bank to refinance the mortgage and should do so whether interest rates rise or fall, and no matter what path interest rates follow from the inception of the instrument until its maturity.
50 Citations
12 Claims
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1. A computer-implemented apparatus for facilitating issuance of an interest-bearing instrument, comprising:
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a memory; and a computer processor in communication with the memory, the computer processor executing functions comprising; (a) receiving data corresponding to market factors; (b) storing the received market factors data in a database; (c) selecting an option model; (d) receiving data corresponding to a regression model; (e) receiving data corresponding to a prepayment model; (f) receiving data corresponding to an interest rate term structure model; (g) receiving data corresponding to a default term structure; (h) receiving data corresponding to transaction indicative details associated with the interest bearing instrument to be issued; (i) normalizing the received and stored data; (j) calculating prepayment probabilities based on an output of the regression model and an output of the prepayment model; (k) calculating a forward term structure of at least one benchmark rate based on the interest rate term structure model; (l) calculating discount factors to be applied to at least one cashflow associated with the interest bearing instrument to be issued; (m) calculating an option value from the option model using the prepayment probabilities, the forward term structure, the discount factors, and the default term structure; (n) calculating a principal modification value based on the option value, wherein the principal modification value modifies a principal amount associated with the interest bearing instrument to be issued; (o) calculating a risk capital savings using the following equation; - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12)
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Specification