Patent ID: 7818244
Filing Date: 2010-10-19
Classification: G06Q

Abstract:
1. A electronic programmed computer implemented method for approximating distribution of a Stochastic process for modeling derivative securities, the method comprising the steps of: specifying a stochastic process for an underlying state variable; using Monte Carlo simulations, by a computer, to generate a plurality of paths corresponding to the underlying state variable, each of the plurality of paths comprising states that represent future evolutions of the underlying state variable for a given time period through a given maturity date; generating a tree using a computer, based upon the plurality of paths, the tree comprising a recombining of states of the plurality of paths at each of a plurality of time layers, wherein the recombining for a given time layer determines a set of closest generated states for the given time layer as compared to a previous time layer, and applies a transition probability to link the set of closest generated states for the given time layer to a previous state; and wherein the underlying state variable is a primary state variable having a corresponding secondary state variable, and wherein specifying the stochastic process, using the Monte Carlo simulations, and generating the tree implement the primary state variable and the secondary state variable and using the generated tree to evaluate derivative securities.