Factor risk model based system, method, and computer program product for generating risk forecasts

US7752099B2 · kind B2 · utility

Assignee

• ITG Software Solutions, Inc. · US

Inventors

• Ananth Madhavan · New York, US
• Artem V. Asriev · Winchester, US
• Scott Kartinen · New York, US
• Jian Yang · San Jose, US
• Vitaly Serbin · Somerville, US
• Ian Domowitz · New York, US
• Kenneth E. Gosier · Cambridge, US

Key dates

• Filing date: Apr 4, 2003
• Grant date: Jul 6, 2010
• Expiry date: Mar 1, 2029

Classification

• Technology area (CPC G): Physics
• CPC primary: G06Q40/06
• WIPO field: IT methods for management
• WIPO sector: Electrical engineering

Abstract

A factor risk model based method for generating risk forecasts. In one embodiment, the method includes: selecting a set of securities; selecting a set of risk factors; determining the risk factor returns; constructing a risk factor covariance matrix; constructing an idiosyncratic variance matrix; determining, for each risk factor, a factor loading coefficient for each selected security; projecting the risk factor covariance matrix into a future forecast; and projecting the idiosyncratic variance matrix into a future forecast. The factor loading coefficients, the future forecast of the risk factor covariance matrix, and the future forecast of the idiosyncratic variance matrix can be used to determine a forecast of the variance-covariance matrix for the selected securities. In some embodiments, the step of estimating factor loadings includes performing a time series regression to obtain the sensitivity of each stocks' return to variations in the factor's return.