Patent ID: 7212998

Claim:
A method of pricing box options for an asset that has a value that varies over time, comprising the steps of: (a) receiving data representing values of the asset over time; (b) receiving data representing parameters of a box option on the asset; (c) computing a probability of the value of the asset hitting the box from the front; (d) computing the probability of the value of the asset hitting the box from the top; (e) computing the probability of the value of the asset hitting the box from the bottom; (f) computing the probability of the value of the asset hitting the box anywhere; and (g) computing a price for the option by multiplying a modified probability p! times an amount of money to be paid for hitting the box, then adding a transaction fee, wherein said modified probability p! is calculated according to the formula: p ′ = ( 1 + c ) ⁢ p 1 + cp where c is a non-negative safety parameter and p is the probability of the value of the asset hitting the box anywhere.