Patent Document ID: 20130297530
Application ID: 13503698
Patent Flag: 0

Claim One:
1. A computer-based method of estimating the factor-factor covariance matrix of a factor risk model comprising: a memory for storing data for the factors to be included in the factor risk model; segmenting the time series history of factor returns into two or more equal length segments that may overlap utilizing a programmed processor cooperating with the memory and with software; computing a measure of volatility for each segment utilizing the programmed processor cooperating with the memory and with software; computing a segment adjustment factor for all segments except the most recent utilizing the programmed processor cooperating with the memory and with software such that the adjusted measure of volatility for each partition is substantially equal to the measure of volatility of the most recent segment; computing a factor return adjustment factor for each factor return that depends on the segment adjustment factors utilizing the programmed processor cooperating with the memory and with software; computing each element of the factor-factor covariance matrix as an exponentially weighted covariance of the time series of the products of historical factor returns and each factor return adjustment factor utilizing the programmed processor cooperating with the memory and with software; outputting the factor-factor covariance matrix as an electronic output utilizing an output device.