Patent ID: 7774255

Claim:
A method for calculating default times for securities contained in a basket of securities, wherein said method is implemented with a computer system comprising one or more computer processors, said method comprising the steps of: determining, 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; determining, 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; determining, 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; the method also comprising the steps of: (a) determining, with at least one of said one or more computer processors, a proposed default time increment value; (b) determining, 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; (c) calculating, 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; (d) determining, with 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 (e) repeating steps (a)-(d) at least with respect to one or more unassigned securities.