Patent Document ID: 7613646
Application ID: 10618566
Patent Flag: 1

Claim One:
1. A method implemented on a computer for pricing a financial derivative of a non-marketed variable x e , the method comprising: retrieving from a storage medium into memory of the computer information associated with the non-marketed variable x e , and a market representative x m , wherein the market representative x m is useful in determining a value of the financial derivative; calculating on the computer a solution to an equation involving a price of the financial derivative V(x e , t) defined as a function of x e and time t, wherein the equation comprises a coefficient involving the information associated with x e and x m ; and generating on the computer an output including the calculated price of the financial derivative; wherein the information associated with x e and x m comprises a drift rate of the non-marketed variable x e , and a drift rate of the market representative x m ; wherein the information associated with x e and x m further comprises variances of the non-marketed variable x e and the market representative x m , and a covariance between the non-marketed variable x e and the market representative x m ; wherein the coefficient involving the information associated with x e and x m has the form μ e −β em (μ m −r), where μ e is a drift rate of the non-marketed variable x e , μ m is a drift rate of the market representative x m , and β em is a factor derived from a variance of the market representative x m and a covariance between the non-marketed variable x e and the market representative x m ; wherein the market representative x m comprises a marketed asset or combination of such assets that is approximately most correlated with the non-marketed variable x e ; wherein the equation is an extended Black-Scholes equation obtained from a standard Black-Scholes equation by replacing, in a term involving a first-order partial derivative of V(x e , t) with respect to x e , a coefficient r, representing an interest rate, by the coefficient involving the information associated with x e and x m .