Valuation Stability via Segmented Present and Static Value Summation
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Solution Overview
Problem
Existing data processing systems face instability in valuing bundles of constructs when a separation event occurs, leading to abrupt changes in value, which is undesirable for monitoring over time.
Innovation Solution
A data processing system that determines a present value and a static value after a separation event, calculating a sum of both values to stabilize the valuation of bundles of constructs, applicable to hardware, software, and credit default swaps.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Measurement precision
If a failing construct is separated from the bundle after a separation event, then the accuracy of valuation is improved, but the stability of value over time deteriorates due to abrupt changes
Solution Approach 1:
The valuation is segmented into two independent components: present value (reflecting current bundle composition after separation) and static value (reflecting historical composition). This segmentation allows each component to serve a specific purpose without compromising the other, resolving the contradiction between accuracy and stability.
Solution Approach 2:
The static value acts as an intermediary component that bridges the gap between historical bundle composition and current valuation. By introducing this intermediate element, the system maintains continuity and stability while accommodating separations, preventing abrupt value changes.
2Loss of information
If the present value alone is used for valuation, then the reflection of current bundle composition is improved, but the compensation for failure risks deteriorates
Solution Approach 1:
The valuation merges present value and static value into a unified valuation metric. This combination ensures that both current bundle composition (via present value) and historical failure risk exposure (via static value) are reflected, preventing loss of important information and maintaining reliability.
Solution Approach 2:
The combined valuation system serves multiple functions simultaneously: it reflects current bundle composition, compensates for failure risks, and provides a stable valuation over time. This multi-functionality resolves the contradiction by making the valuation system versatile enough to handle both requirements.
3Stability of the object's composition
If the static value is reduced each time a separation event occurs, then the stability of valuation is improved, but the sensitivity to separation events deteriorates
Solution Approach 1:
The static value is designed to be dynamic rather than fixed: it is reduced systematically each time a separation event occurs. This dynamic adjustment maintains stability by preventing abrupt changes while preserving sensitivity through progressive adaptation to separation events.
Solution Approach 2:
The systematic reduction of static value in response to separation events acts as a preliminary adjustment that prevents future valuation instability. By anticipating and preparing for the impact of separations through predefined reduction mechanisms, the system maintains both stability and sensitivity.
Data Source
AI summary
There is provided a data processing system and method for valuing a bundle of constructs that may individually fail, in case of a separation event causing the bundle of constructs to separate a failing construct from the bundle. A present value determination unit applies a predefined model to determine a present value of the bundle of constructs after having separated the failing construct from the bundle. Further, a static value determination unit determines a static value by reducing a static base number each time a separation event occurs. Furthermore, a calculation unit calculates a value of the bundle of constructs based on the determined present value and the determined static value. The calculation unit is adapted to calculate a sum of the determined present value and the determined static value. In an embodiment, the bundle of constructs is a basket of credit default swaps.