Patent Document ID: 8700516
Application ID: 13503698
Patent Flag: 1

Claim One:
1. A computer-based method of estimating a factor-factor covariance matrix of a factor risk model comprising: storing data for the factors to be included in the factor risk model in a memory, wherein said memory is a non-transitory computer readable media; grouping factor returns from a time series history of factor returns to form two or more equal length segments that overlap by a programmed processor cooperating with the memory and with software; computing a measure of volatility for each segment by the programmed processor cooperating with the memory and with software; computing a segment adjustment factor for all segments by the programmed processor cooperating with the memory and with software such that the segment adjustment factor for each segment is calculated as a ratio of the volatility measure of the most recent segment divided by the volatility measure of the segment; computing a factor return adjustment factor for each factor return employing an interpolation approach that generates a continuous interpolation of the segment adjustment factors by 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 by the programmed processor cooperating with the memory and with software; and outputting the factor-factor covariance matrix as an electronic output by an output device.