Patent Document ID: 7698202
Application ID: 11668294
Patent Flag: 1

Claim One:
1. A computer-based method of modifying a risk estimate for a portfolio of securities produced by an original fully specified factor risk model defined for a set of securities, said factor risk model comprising an original fully specified matrix of factor exposures, a matrix of factor covariances, and a matrix of specific risk variances, all of whose elements are known deterministically or probabilistically, comprising: selecting a portfolio whose risk is to be estimated; computing a new factor exposure vector with a numerical value for each security in the set of securities utilizing a programmed computer that is a matrix product of a projection matrix that projects any vector into a null space of a transpose of the original fully specified matrix of factor exposures times a vector of weights for the portfolio of securities; determining a correction magnitude for the new factor exposure vector utilizing the programmed computer; calculating an adjusted risk estimate for the portfolio that is the square root of: the square of the risk estimate of the original fully specified factor risk model plus the inner product of the new factor exposure with itself times the correction magnitude; and outputting the adjusted risk estimate as an electronic output.