Patent ID: 7315842

Claim:
A computer-implemented method for computing and outputting an indicated price, with adjustment for risk, of anticipated contract obligations comprising the steps of: a) identifying an underlying risk vehicle, comprised of a group of one or more assets and liabilities, b) assembling a series of potential future cashflow outcomes, consisting of cashflow values linked to their respectively paired probabilities, as a future probability distribution for that underlying risk vehicle, c) sorting the series of outcomes by their ascending cashflow values, from the lowest listed as first to the highest listed as last, with those cashflow values still linked to their original respectively paired probabilities, d) cumulating the respectively paired probabilities of the sorted series of outcomes so that the last such cumulated probability still linked to the highest cashflow value equals 1, e) providing individual inversely-mapped results for those probabilities, by applying the inversion of the standard normal distribution to all of the cumulated probabilities, f) selecting a lambda value equal to the market price of risk for the overall future probability distribution of the underlying risk vehicle, g) adding the selected lambda value to obtain a shifted inversely-mapped result, h) creating transformed cumulative probability weights, by applying the standard normal cumulative distribution to each shifted result, i) decumulating the transformed cumulative probability weights of the sorted series of outcomes so that the first decumulated weight equals its own cumulated weight, the second decumulated weight equals the second cumulated weight minus the first cumulated weight, the third decumulated weight equals the third cumulated weight minus the second cumulated weight, and so on, continuing until the last decumulated weight equals the last cumulated weight minus the next-to-last cumulated weight, j) producing a set of weighted values, by multiplying the cashflow values to their respective decumulated probability weights; k) computing and outputting an undiscounted future indicated price for the underlying risk vehicle by adding all the weighted values in the set.