Inventors:
Hua Chen - Brooklyn NY, US
International Classification:
G06F017/60
Abstract:
The present invention involves a method and an apparatus capable of calculating, in real time, option-embedded coupon bearing bonds by option adjusted spread and linear approximation. The linear approximation uses a first order partial derivative to calculate a vector of sensitivities of bond price against yield curve by which an nth order linear approximation of the bond price can be approximated. The apparatus comprises a plurality of trader's workstations, one of which may serve as an option adjusted spread lattice engine for full lattice computation. The trader's workstations may be actuated by a triggering object, which receives yield curve, bond price, spread, volatility and other bond information updates from a database server. For each security, the Lattice Engine uses the lattice method to compute the price of the security and a vector of partial derivatives of the security price with respect to the yield curve. While other workstations, upon receiving any update of the yield curve, use the results of the Lattice Engine to perform first order approximation of the security prices. Since linear approximation is a simple calculation, the price update of a large number of securities can be carried out in real time. Because the Lattice Engine recalculates the first order partial derivatives when the yield curve has changed significantly, the linear approximations are very accurate in general.