MODELING INVESTMENT RISK USING LIQUID VISCOSITY FIELD OF THE INVENTION

The present invention related to the field of managing assets portfolio, more specifically, it describes methods and means for increasing rationality as a factor in decision making processes.

BACKGROUND

In the world of investments, the balance between risk and safe investment is elusive. The desire to make large profit is usually accompanied with a large risk, while investing ¹ money in safe channels will result in low profit. Different methods are used for maintain proper balance between the two, and throughout the years different tactics have been modeled by physical theories in order to predict profitability.

Journal of Banking and Finance, Pg. 1295 Vol. 31 No. 5 ISSN: 0378-4266 reveals a fluid model for estimating the balance between large sell at a small time period and a small sell during a long time period. However, the above does not disclose a model for understanding the desired separation between high and low risk assets.

U.S. Patent 7,373,324 discloses a computer system for facilitating the distribution of financial investment advice. This patent is not aimed at reducing the investor's anxiety and therefor increasing rationality as a factor in decision making processes by separately managing high risk and low risk portfolios.

There is therefore a long unmet need for a physical model which will predict the appropriate balance between risk and safe in a shares portfolio.

SUMMARY OF THE INVENTION

An object of the invention is to disclose a computer-readable medium having instructions thereon for managing a portfolio of assets; the portfolio comprises N folders, each characterized by a risk parameter v _t ; value of each of the folder forms portion χι of the portfolio value; χ Xt = 1 ; each folder comprises a set of assets; the instruction includes calculating for at least one predetermined time interval starting from time tO: a. portfolio first profitability; where each of the folders value portion χ _{ is set at tO and is changed during commerce according to the stock's value;

b. portfolio second profitability; where each of the folder value portion χ, is constant during the time interval; the assets are moved between the folders to maintain each of the folder value portion χ,; wherein ratio between first rofitability and second profitability is

It is another object of the invention to disclose the computer-readable medium as defined above , wherein said assets in each said folder are either purchased or sold during commerce from either one of any of said folder in said portfolio, assets external to said portfolio and a combination thereof.

It is another object of the invention to disclose the computer-readable medium as defined above, wherein profitability is calculated as the change of the folder value during predetermined time interval.

It is another object of the invention to disclose the computer-readable medium as defined above, wherein either one of the first profitability, second profitability and a combination thereof is calculated periodically.

Another object of the current invention is to disclose a first method for increasing rationality as a factor in decision making processes, comprising steps of

a. providing a computer-readable medium having instructions thereon for managing a portfolio of assets; the portfolio comprising N folders, each characterized by a risk parameter Vi ; value of each of the folder forms portion XJ of said portfolio value; Xj Xi ; each folder comprises a set of assets; ^! ' b. calculating using the computer readable medium portfolio first profitability; where each of the folders value portion Xj is set at tO and is changed during commerce according to the stock's value;

c. calculating using the computer readable medium portfolio second profitability; where each of the folder value portion χι is constant during said time interval; the assets are moved between said folders to maintain each of the folder value portion χ;; wherein ratio between first profitability and second profitability is

thereby, reducing investors anxiety by at least one level of anxiety level and therefore increasing rationality as a factor in decision making processes.

It is another object of the current invention to disclose the first method as defined above, wherein the anxiety level is measured by means selected from a group comprising of: the RISK tolerance score, the State-Trait Anxiety Inventory (STAI), the Yale Preoperative Anxiety Scale (mYPAS), the Wong-Baker FACES scale, monotonic combinations thereof, and normalizations thereof.

It is another object of the current invention to disclose the first method as defined above, wherein assets in each said folder are either purchased or sold during commerce from either one of any of said folder in the portfolio, assets external to the portfolio and a combination thereof.

It is another object of the current invention to disclose the first method as defined above, wherein profitability is calculated as the change of the folder value during predetermined time interval.

It is another object of the current invention to disclose the first method as defined above, wherein either one of first profitability, second profitability and a combination thereof is calculated periodically.

It is yet another object of the current invention to disclose a second method for increasing rationality as a factor in decision making processes, comprising steps of

a. gathering data related to a decision; b. classifying the data into N separable files; where separable files form a folder;

c. evaluating value of each of the files at time tO;

d. providing a computer-readable medium having instructions thereon for managing the files, each characterized by a risk parameter value of each of the files forms portion ft of the folder total value; said Xi

e. calculating using the computer readable medium folder first value change during a predetermined time interval; where each of the files value portion Xi is set at time tO and is changed during time according to the files value; the files value is estimated for any time t; said t satisfy t>t0;

f. calculating using the computer readable medium folder second value change during a predetermined time interval; where each of the files value portion χ _; is constant during the time interval; the files content change to maintain each of the file value portion XJ ;

wherein ratio between first value change and second value change is

thereby, increasing rationality of a user as a factor in said decision making processes.

It is another object of the current invention to disclose the second method as defined above, wherein content in each of the files is either purchased or sold during commerce from either one of any of the files in the folder, content relevant to the file external to the folder and a combination thereof.

It is another object of the current invention to disclose the second method as defined above, wherein the value change is calculated as the change of the folder value during predetermined time interval. It is another object of the current invention to disclose the second method as defined above,, wherein either one of first value change, second value change and a combination thereof is calculated periodically.

BRIEF DESCRIPTION OF THE DRAWINGS

In order to understand the invention and to see how it may be implemented in practice, a few preferred embodiments will now be described, by way of non-limiting example only, with reference to be accompanying drawings, in which:

Fig. 1 shows the analogy between assets portfolio parameters to the physical parameters of a fluid;

Fig. 2 demonstrates separated and combined tanks of fluids with different viscosity; and

Fig. 3 describes a flow chart for a first method of increasing rationality as a factor in decision making processes.

Fig. 4 shows a flow chart for a second method of increasing rationality as a factor in decision making processes.

DETAILED DESCRIPTION OF THE INVENTION

The following description is provided so as to enable any person skilled in the art to make use of the invention and sets forth examples contemplated by the inventor of carrying out this invention. Various modifications, however, will remain apparent to those skilled in the art, since the generic principles of the present invention have been defined specifically. Also, it is to be understood that the phraseology and terminology employed herein is for the purpose of description and should not be regarded as limiting.

The terms "investor", refers hereinafter to any party that makes an investment. The term "anxiety level" refers hereinafter to any measuring means for anxiety or for risk such as the State-Trait Anxiety Inventory (STAI), an investment variation of modified Yale Preoperative Anxiety Scale (mYPAS), modified visual scales like Wong-Baker FACES scale, other custom made scales, Survey of Consumer Finances (SCF), or any other scales used for this purpose, and any combination thereof.

An object of the invention is to disclose a computer-readable medium having instructions thereon for managing a portfolio of assets; the portfolio comprising N folders, each characterized by a risk parameter v^value of each of the folder forms portion x _t of the portfolio value; %j satisfies∑i ₌₁ Xi = 1 ; each folder comprises a set of assets; the instruction includes calculating for at least one predetermined time interval starting from time tO:

a. portfolio first profitability; where each of the folders value portion XJ is set at tO and is changed during commerce according to the stock's value; b. portfolio second profitability; where each of the folder value portion χ; is constant during the time interval; the assets are moved between the folders to maintain each of the folder value portion ¾; wherein ratio between first profitability and second profitability is

Another object of the current invention is to disclose a first method for increasing rationality as a factor in decision making processes, comprising steps of a. providing a computer-readable medium having instructions thereon for managing a portfolio of assets; the portfolio comprising N folders, each characterized by a risk parameter Vj ; value of each of the folder forms portion χ, of said portfolio value; & satisfies X _j li Xi; each folder comprises a set of assets; b. calculating using the computer readable medium portfolio first profitability; where each of the folders value portion Xi is set at tO and is changed during commerce according to the stock's value;

c. calculating using the computer readable medium portfolio second profitability; where each of the folder value portion Xj is constant during said time interval; the assets are moved between said folders to maintain each of the folder value portion ¾; wherein ratio between first profitability and second profitability is

thereby, reducing investors anxiety by at least one level of anxiety level and therefore increasing rationality as a factor in decision making processes.

It is yet another object of the current invention to disclose a second method for increasing rationality as a factor in decision making processes, comprising steps of

a. gathering data related to a decision;

b. classifying the data into N separable files; where separable files form a folder;

c. evaluating value of each of the files at time tO;

d. providing a computer-readable medium having instructions thereon for managing the files, each characterized by a risk parameter v,; value of each of the files forms portion Xi of the folder total value; said χ; satisfies χΰ

e. calculating using the computer readable medium folder first value change during a predetermined time interval; where each of the files value portion χ, is set at time tO and is changed during time according to the files value; the files value is estimated for any time t; said t satisfy t>t0;

f. calculating using the computer readable medium folder second value change during a predetermined time interval; where each of the files value portion ¾ is constant during the time interval; the files content change to maintain each of the file value portion Xi

wherein ratio between first value change and second value change is

thereby, increasing rationality of a user as a factor in said decision making processes.

An analogy between the movement of a fluid in a tank to the behavior of assets and assets portfolio during commerce in the stock market is presented. The analogy is aimed to compare the profit loss in two methods of portfolio management:

a. portfolio is divided into folders, each folder is characterized by a risk parameter. Each folder comprises a constant percentage of the portfolio value, the percentages are preserved during commerce (i.e. assets are being transferred in and out of folders to maintain the percentage); and

b. portfolio is divided into folders, each folder is characterized by a risk parameter.

Each folder comprises a percentage of the portfolio value. The percentage is determined at some time - 1 and is NOT maintained during commerce, that is, the portfolio is completely divided into folders according to their risk parameter and there is no transition of assets between folders.

The two methods are being compared to tanks of liquids where each liquid is characterized by a viscosity parameter.

Reference is now made to Fig. 1, which demonstrates an analogy between assets portfolio and the physical properties of a fluid in a tank. The analogy is between a fluid 101 representing in our case a stock or a folder of assets 102; each folder has a certain risk parameter 104, in order to understand the effect of the risk parameter, we use it as the viscosity 103 of the fluid 101. The tank with the fluid is moving due to force applied on it 105, and this force is in analogy to the stock exchange movement 106. Therefore, the analogy will be between the two above mentioned portfolio management methods to two methods of calculating energy loss (i.e. money loss in portfolio) respectively ad demonstrated in Fig. 2:

a. a single tank 201 comprises a mixture of liquids with viscosity of a blend of the liquids v _biend . A force is applied on the tank wall and during the movement of the liquid inside the tank, energy is lost; and

b. a plurality of tanks 202, 203 comprising different liquids, each liquids is of different viscosity v _t . A force is applied on the tanks wall and during the movement of the liquids inside the tanks energy is lost.

Energy lost E during movement of a tank is proportional to the viscosity v multiplied by length of the tank L, that is:

E~v L

The viscosity i¾ _iend of a blend of N liquids, each characterized with viscosity v _t is given by the Refutas formula:

where: VBN _blend =∑? ₌₁ χι * VBN _t , VBN _t = 14.534 * ln[ln(v _t + 0.8)] + 10.975, and x _t is the mole fraction, and units of viscosity are in centistokes.

We therefore conclude that the ration between energy loss in separated tanks of liquids and a mixture of tanks (in the case where the length of the tank of the mixed liquids is the sum of M separated tanks, each with the same length) is:

Since more energy is lost on the separated tanks during movement of the liquid, less energy will hit the tank wall and less liquid will be poured out. The analogy between the assets and liquids lead to the conclusion that in separated stock folders less money will be lost during significant movements in the stock exchange.

The computer readable medium in our invention is adapted to calculate the above mentioned ration in a stock portfolio. The ratio is calculated for the two methods of managing the portfolio during a certain predetermined time period. In option (a) of portfolio management mention above, assets are transferred between folders or from outside the portfolio in order to maintain the ration between folders.

In some embodiment of the current invention, computer readable medium calculated the above mentioned ratio periodically.

In some embodiments of the current invention, the anxiety level is measured by means selected from a group comprising for example of: the RISK tolerance score, the State-Trait Anxiety Inventory (STAI), the Yale Preoperative Anxiety Scale (mYPAS), the Wong-Baker FACES scale, monotonic combinations thereof, and normalizations thereof.

Reference is now made to Fig. 3 which presents in a non-limiting manner a flow chart of a first method for increasing rationality as a factor in decision making processes., comprising steps of a. providing 301 a computer-readable medium having instructions thereon for managing a portfolio of assets; the portfolio comprising N folders, each characterized by a risk parameter Vj; value of each of the folder forms portion %j of said portfolio value; & satisfies∑ili ii each folder comprises a set of assets;

b. calculating 302 using the computer readable medium portfolio first profitability; where each of the folders value portion χ; is set at tO and is changed during commerce according to the stock's value; c. calculating 303 using the computer readable medium portfolio second profitability; where each of the folder value portion Xi is constant during said time interval; the assets are moved between said folders to maintain each of the folder value portion χ ₍ ; wherein ratio between first profitability and second profitability is

thereby, reducing investors anxiety by at least one level of anxiety level and therefore increasing rationality as a factor in decision making processes.

Reference is now made to Fig.4 which describes in a non-limiting manner a flow chart of a second method for increasing rationality as a factor in decision making processes, comprising steps of

a. gathering 401 data related to a decision;

b. classifying 402 the data into N separable files; where separable files form a folder; c. evaluating 403 value of each of the files at time tO;

d. providing 404 a computer-readable medium having instructions thereon for managing the files, each characterized by a risk parameter V _j ; value of each of the files forms portion χ, of the folder total value; said Xj satisfies∑f ₌₁ χ _; ;

e. calculating 405 using the computer readable medium folder first value change during a predetermined time interval; where each of the files value portion χ; is set at time tO and is changed during time according to the files value; the files value is estimated for any time t; said t satisfy t>t0;

f. calculating 406 using the computer readable medium folder second value change during a predetermined time interval; where each of the files value portion Xi is constant during the time interval; the files content change to maintain each of the file value portion χ _{ ; wherein ratio between first value change and second value change is

thereby, increasing rationality of a user as a factor in said decision making processes.

In some embodiments of the current invention, the second method as defined above, wherein content in each file is either purchased or sold during commerce from either one of any of said files in the folder, content relevant to the file external to the folder and a combination thereof.

In some embodiments of the current invention, the second method as defined above, wherein value change is calculated as the change of the folder value during predetermined time interval,

In some embodiments of the current invention, the second method as defined above, wherein either one of first value change, second value change and a combination thereof is calculated periodically.

EXAMPLE 1

In one example of the current invention, portfolio comprises two folders, equal in size with different risk parameter. The ratio of energy loss is calculated between (a) two tanks, equal in size -L, one tank is with water (viscosity 1) and the other tank has a viscosity parameter v; and (b) the mixing of the two liquids in one unified tank with size 2L. In this case the ration of energy loss between the two tanks and the unified tank will be:

The plot of (R-l) is: R - 1

demonstrating that energy loss is bigger in the mixed tank, hence, less fluid is poured out of the tank during movement.

It will be appreciated by persons skilled in the art that embodiment of the invention are not limited by what has been particularly shown and described hereinabove. Rather the scope of at least one embodiment of the invention is defined by the claims below.