System and method for asymmetric offsets in a risk management system

• US 10,026,123 B2
• Filed: 10/02/2013
• Issued: 07/17/2018
• Est. Priority Date: 09/10/2004
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Glinberg, Dmitriy, Yoo, Tae S., Michaels, Dale A., Gogol, Edward
• Primary Examiner(s): Apple, Kirsten S
• Assistant Examiner(s): ANDERSON, MICHAEL W
• Application Number:
  US14/044,584
• Publication Number:
  US 20140032390A1
• Time in Patent Office: 1,749 Days
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A system and method for using asymmetrical offsets for products in a risk management analysis system are disclosed. Conventional systems assign symmetrical offsets for products, that is, if two products have an 80% correlation they each would be assigned an offset of 80% with respect to each other. However, it is desirable to allow for asymmetrical offsets. In the disclosed system and method, when two products have a correlation of 80%, one may be assigned an offset of 75% and the other may be assigned an offset of 80%. There are many reasons to vary the offset between the products. The varying offset may reflect an asymmetry in the risk in one of the products, such as being traded in an illiquid market or in a less desirable venue. The varying offset may correct for an imbalance in spread credits due to special charges from intra spreading.

Claims

1. A method comprising:

receiving, at a first processor, real time data;

calculating, by the first processor, a first margin requirement for a first tradable instrument with respect to a second margin requirement for a second tradable instrument related to the first tradable instrument, based on the real time data associated with the first tradable instrument as compared to the second tradable instrument;

calculating, by the first processor, a third margin requirement for a third tradable instrument with respect to a fourth margin requirement for a fourth tradable instrument associated with the third tradable instrument;

defining a plurality of windows for windows classes for the first, second, third and fourth tradable instruments, wherein the plurality of windows each have a size based on a corresponding correlation;

computing, by a second processor, wherein the second processor is a correlation processor, a margin for a portfolio comprising the first, second, third and fourth tradable instruments as a sum of the first, second, third and fourth margin requirements by moving the plurality of windows; and

sending the margin for the portfolio to an improved efficiency clearing system.

2. The method of claim 1, wherein a risk of loss associated with the first tradable instrument is asymmetric as compared to a risk of loss of the second tradable instrument or a risk of loss associated with the third tradable instrument is asymmetric with a risk of loss associated with the fourth tradable instrument.

3. The method of claim 2, further comprising:

assigning a first offset to the first tradable instrument; and

assigning a second offset to the second tradable instrument, wherein the first offset is different than the second offset.

4. The method of claim 3, wherein a difference between the first offset and the second offset reflects an asymmetry in risk.

5. The method of claim 3, wherein a difference between the first offset and the second offset reflects an illiquid market for the first tradable instrument or the second tradable instrument.

6. The method of claim 3, wherein a difference between the first offset and the second offset reflects a desirability of a venue associated with the first tradable instrument or the second tradable instrument.

7. The method of claim 1, wherein the first tradable instrument is an option on a combination product.

8. The method of claim 7, wherein the combination product is a butterfly spread or a calendar spread.

9. The method of claim 7, wherein the combination product is a user defined spread comprising legs selected individually by a user.

10. The method of claim 1, further comprising:

separating the first tradable instrument as a first commodity at a first month and second commodity at a second month.

11. The method of claim 10, further comprising:

calculating a first credit rate for the first commodity and a second credit rate for the second commodity, wherein the first credit rate exceeds the second credit rate.

12. An apparatus comprising:

a network interface configured to receive real time data;

a first processor configured to;

calculate a first margin requirement for a first tradable instrument with respect to a second margin requirement for a second tradable instrument related to the first tradable instrument, based on the real time data associated with the first tradable instrument as compared to the second tradable instrument;

calculate a third margin requirement for a third tradable instrument with respect to a fourth margin requirement for a fourth tradable instrument associated with the third tradable instrument; and

a second processor configured to compute a margin for a portfolio comprising the first, second, third and fourth tradable instruments as a sum of the first, second, third and fourth margin requirements, wherein the margin is based on a plurality of windows for windows classes for the first, second, third and fourth tradable instruments and having a size based on a corresponding correlation;

wherein the network interface is configured to send the margin for the portfolio to an increased efficiency clearing system.

13. The apparatus of claim 12, wherein a risk of loss associated with the first tradable instrument is asymmetric as compared to a risk of loss of the second tradable instrument or a risk of loss associated with the third tradable instrument is asymmetric with a risk of loss associated with the fourth tradable instrument.

14. The apparatus of claim 13, whether the first processor is further configured to:

assign a first offset to the first tradable instrument; and

assign a second offset to the second tradable instrument, wherein the first offset is different than the second offset.

15. The apparatus of claim 14, wherein a difference between the first offset and the second offset reflects an asymmetry in risk.

16. The apparatus of claim 14, wherein a difference between the first offset and the second offset reflects an illiquid market for the first tradable instrument or the second tradable instrument.

17. The apparatus of claim 14, wherein a difference between the first offset and the second offset reflects a desirability of a venue associated with the first tradable instrument or the second tradable instrument.

18. The apparatus of claim 13, wherein the first tradable instrument is an option on a combination product.

19. A non-transitory computer readable medium including instructions that when executed are configured to cause one or more processors to:

receive real time data;

calculate, by the first processor of the one or more processors, a first margin requirement for a first tradable instrument with respect to a second margin requirement for a second tradable instrument related to the first tradable instrument, based on the real time data associated with the first tradable instrument as compared to the second tradable instrument;

calculate, by the first processor, a third margin requirement for a third tradable instrument with respect to a fourth margin requirement for a fourth tradable instrument associated with the third tradable instrument;

define a plurality of windows for windows classes for the first, second, third and fourth tradable instruments, wherein the plurality of windows each have a size based on a corresponding correlation;

compute, by a second processor of the one or more processors, wherein the second processor is a correlation processor, a margin for a portfolio comprising the first, second, third and fourth tradable instruments as a sum of the first, second, third and fourth margin requirements by moving the plurality of windows; and

send the margin for the portfolio to an improved efficiency clearing system.

20. The non-transitory computer readable medium of claim 19, including instructions that when executed are configured to cause one or more processors to:

assign a first offset to the first tradable instrument; and

assign a second offset to the second tradable instrument, wherein the first offset is different than the second offset.