Patent ID: 7236951

Claim:
A method, using a computer, of calculating the financial status of a company, comprising the steps of: determining using a computer, the value of the company in accordance with a formula d ⁢ ⁢ V V = ( r - λ ⁢ ⁢ κ ) ⁢ ⁢ d ⁢ ⁢ t + σ ⁢ ⁢ d ⁢ ⁢ W + ( ⅇ J - 1 ) ⁢ ⁢ d ⁢ ⁢ N wherein N is a standard Poisson process with intensity λ, J is a normal variable with mean j and standard deviation k; W is a standard Wiener process, V is the value of the company, r is an interest rate, σ is a company volatility, λ is an intensity of jump arrival, t is a calendar time between today and maturity T; determining, using a computer, that the company defaults if at a sequence of discrete observational times t 0 =0(today),t 1 , t 2 , . . . ,t N =T(maturity) the value of the company V n =V(t n ) falls below a corresponding barrier level B 1 , B 2 , . . . ,B N =D , the barrier levels selected to represent different debt amounts which come due at corresponding times t 0 =0(today),t 1 ,t 2 , . . . ,t N =T(maturity); calculating a transitional probability density function (TPDF) for the value of the company conditional on no default occurring between time t=0 and an observational time t X ; and determining, using the TPDF, a transitional probability that the company will have a value of V m at time t n .