Patent ID: 7818242

Claim:
A system for calculating default times for securities contained in a basket of securities, comprising: one or more computer processors; and memory comprising program instructions, wherein the program instructions are executable by at least one of said one or more processors to: (a) determine, with at least one of said one or more computer processors, for each of said securities, a hazard rate that is a stochastic process that represents the instantaneous probability of default for a corresponding one of said securities, wherein said hazard rates are correlated; (b) determine, with at least one of said one or more computer processors, for each of said securities, a compensator based on integrating the hazard rate associated with the corresponding one of said securities over time; (c) determine, with at least one of said one or more computer processors, for each of said securities, a barrier value selected according to a multivariate distribution of barriers with exponential marginals, thereby establishing random correlated barriers; (d) determine, with at least one of said one or more computer processors, a proposed default time increment value; (e) determine, with at least one of said one or more computer processors, a current proposed default time by adjusting a prior proposed default time based on the proposed default time increment value; (f) calculate, with at least one of said one or more computer processors, for each of a plurality of said securities, a compensator value of said compensator associated with said corresponding security at said current proposed default time; (g) determine, with at least one of said one or more computer processors, for each of said plurality of securities, whether said corresponding compensator value is in a relative relationship with said corresponding barrier value, and if so assigning a default time to said corresponding security based on said current proposed default time; and (h) repeat steps (d)-(g) at least with respect to one or more unassigned securities.