METHODS AND SYSTEMS FOR ADDRESSING CONVEXITY IN AUTOMATED VALUATION OF FINANCIAL CONTRACTS
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United States of America Patent
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Issued Date -
Jan 14, 2016
app pub date -
Jul 7, 2015
filing date -
Jul 9, 2014
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Abstract
Methods and systems for addressing convexity in automated valuation of financial contracts comprising payment functions are provided. The absence of convexity in a payment function may be detected and, where an absence of convexity is determined, the payment function based on an intrinsic value of the payment function may be valuated. Attempting to detect the absence of convexity may involve modifying the payment function by extracting a numeraire-transform factor and correspondingly changing a numeraire associated with an expectation of the payment function. Valuating the payment function based on an intrinsic value of the payment function may involve multiplying the intrinsic value of the modified payment function by one or more time-zero factors. If a lack of convexity is not detected, the payment function may be valuated based on replication, which may involve modifying the payment function by injecting a numeraire-transform factor.
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