Patent ID: 8458076

Claim:
A computer system for calibrating a volatility grid for financial instruments whose price is dependent on volatility, the computer system comprising: a computer database that stores calibration input data electronically, wherein the calibration input data comprises market price data for a plurality of calibration financial instruments; one or more processor circuits in communication with the database; and one or more memory circuits in communication with the one or more processor circuits, wherein the one or more memory circuits store instructions which when executed by the one or more processor circuits cause the one or more processor circuits to calculate entries for a vector representing the volatility grid based on the calibration input data, wherein the entries for the vector representing the volatility grid are calculated based on a product of a matrix of a set of basis functions and a vector of coefficients for the set of basis functions, wherein entries for the vector of coefficients are determined based on the calibration input data using a Jacobian matrix and at least one regularization matrix.