Jacqueline T Huang

US Patent:

6546375, Apr 8, 2003

Filed:

Sep 21, 1999

Appl. No.:

09/400855

Inventors:

Jacqueline Huang - East Hills NY

Assignee:

Johns Hopkins University - Baltimore MD

International Classification:

G06F 1760

US Classification:

705 37

Abstract:

An apparatus for and method of determining the price of financial derivatives such as options. One preferred embodiment of the invention employs a discretized partial differential linear complementarity problem (PDLCP) based system to determine the forward pricing of financial instruments such as vanilla American options. In this embodiment, an optimization problem in the form of a mathematical program with equilibrium constraints (MPEC) is implemented to derive implied volatilities of the assets underlying the subject derivatives. The implied volatilities thus derived are used as inputs in the PDLCP-based system to accurately determine the forward pricing of the subject derivatives.