Risk Demand Index Calculation via Asset Comparison
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Solution Overview
Problem
Existing financial models and indices fail to adequately consider risk demand, making it difficult for investors to effectively manage investment portfolios and make informed decisions in a changing global marketplace.
Innovation Solution
A method for generating a risk demand index by selecting and combining sub-index modules that compare financial indices of risky assets to non-risky assets, such as bond, commodity, credit, and equity indices, to calculate a comprehensive risk demand index, which can be used to inform investment strategies.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If complex financial models and indices are used to analyze market data, then measurement precision of risk is improved, but device complexity increases making it difficult for investors to understand and implement
Solution Approach 1:
The patent divides the complex risk measurement task into multiple sub-index modules, each focusing on a specific aspect of risk (e.g., equity risk, bond risk, commodity risk). Each sub-module compares risky asset indices against non-risky asset indices independently, then combines results to form a comprehensive risk demand index. This segmentation makes the overall system more manageable and understandable while maintaining measurement precision.
2Loss of information
If existing financial models are used, then analysis capability is provided, but risk demand is not adequately factored into calculations limiting investment return potential
Solution Approach 1:
The patent incorporates feedback mechanisms by continuously comparing risky asset performance against non-risky asset benchmarks across multiple sub-indices. The risk demand index is dynamically updated based on these comparisons, providing real-time feedback to investors about current risk appetite in the market. This enables investors to adjust their portfolios based on actual risk demand conditions, improving investment returns while accurately capturing risk information.
Data Source
AI summary
Methods for generating risk demand indices are provided. In various embodiments, the methods may include selecting a plurality of sub-index modules, wherein generation of each sub-index module involves comparing at least one financial index representative of at least one risky asset to at least one other financial index representative of at least one non-risky asset. The methods may further include combining the selected sub-index modules to calculate the risk demand indices.