Constant volatility or risk indices

• US 20040024695A1
• Filed: 07/17/2003
• Published: 02/05/2004
• Est. Priority Date: 07/19/2002
• Status: Abandoned Application

• Current Assignee: Riskmetrics Group Incorporated (Exela Technologies, Inc.)
• Original Assignee: Riskmetrics Group Incorporated (Exela Technologies, Inc.)
• Inventors: Melamed, Nitzan
• Application Number:
  US10/620,444
• Publication Number:
  US 20040024695A1
• Time in Patent Office: Days
• US Class Current: 705/38
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A technique for implementing a financial instruments index maintains the level of volatility or risk associated with the index at a specified level. Specifically, the technique includes establishing a level of risk at which a risk associated with the index is to be maintained. In at least some embodiments, the level of risk may be quantified using one or more of RiskMetric Group'"'"'s RiskGrade measure, standard deviation, variance, average shortfall, VAR, or any other similar or analogous measures. Once the desired level of risk has been established, the technique monitors the level of risk associated with the index for fluctuations. If detected, the technique rebalances the index by reallocating index components. More particularly, when the risk associated with the index exceeds the desired level of risk by more than a predetermined limit, assets from relatively high risk components of the index are reallocated to relatively low risk components of the index. Likewise, when the risk associated with the index drops below the desired level of risk by more than a predetermined limit, assets from relatively low risk components of the index are reallocated to relatively high risk components of the index. In this manner, the risk level associated with the index may be maintained.

Claims

1. A computer-implemented or assisted method for implementing a constant volatility index, the index having an associated risk, said computer-implemented or assisted method comprising the steps of:

(1) establishing a target level of risk at which to maintain said index;

(2) monitoring said level of risk associated with said index; and

(3) rebalancing said index by reallocating index components when the risk associated with said index deviates from said target level of risk, thereby at least substantially maintaining a specified risk level.

2. The computer-implemented or assisted method of claim 1, further comprising implementing a risk band to delimit a lower level of risk below said target level of risk and an upper level of risk above said target level of risk of said index, and wherein said step of rebalancing comprises rebalancing said index when the risk associated with said index rises above said upper level of risk or drops below said lower level of risk, thereby at least substantially maintaining the risk associated with said index between said lower and upper levels of said risk band.

3. The computer-implemented or assisted method of claim 1, wherein said level of risk is measured using RiskMetric Group'"'"'s RiskGrade measure.

4. The computer-implemented or assisted method of claim 1, wherein said level of risk is measured using at least one of standard deviation, variance, average shortfall, VAR, or any other similar or analogous measures.

5. The computer-implemented or assisted method of claim 1, wherein said step of rebalancing comprises reallocating assets from relatively high risk components of said index to relatively low risk components of said index, if the risk associated with said index exceeds said level of risk by a predetermined level.

6. The computer-implemented or assisted method of claim 1, wherein said step of rebalancing comprises reallocating assets from relatively low risk components of said index to relatively high risk components of said index, if the risk associated with said index drops below said level of risk by a predetermined level.

7. The computer-implemented or assisted method of claim 1, wherein said index components comprise at least one security and cash.

8. The computer-implemented or assisted method of claim 7, wherein said cash is shifted to said at least one security to increase risk.

9. The computer-implemented or assisted method of claim 7, wherein said at least one security is shifted to said cash to decrease risk.

10. A system for implementing a constant volatility index, the index having an associated risk, said system comprising:

an input device for accepting a target level of risk at which to maintain said index;

a device for monitoring said level of risk associated with said index; and

a processor for rebalancing said index by reallocating index components when the risk associated with said index deviates from said target level of risk, thereby at least substantially maintaining a specified risk level.

11. The system of claim 10, wherein said processor implements a risk band to delimit a lower level of risk below said target level of risk and an upper level of risk above said target level of risk of said index, and wherein said processor rebalances said index when the risk associated with said index rises above said upper level of risk or drops below said lower level of risk.

12. The system of claim 10, wherein said level of risk is measured using at least one of RiskMetric Group'"'"'s RiskGrade measure, standard deviation, variance, average shortfall, VAR, or any other similar or analogous measures.

13. The system of claim 10, wherein said processor rebalances said index by reallocating assets from relatively high risk components of said index to relatively low risk components of said index when the risk associated with said index exceeds said level of risk by a predetermined level.

14. The system of claim 10, wherein said processor rebalances said index by reallocating assets from relatively low risk components of said index to relatively high risk components of said index when the risk associated with said index drops below said level of risk by a predetermined level.

15. The system of claim 10, wherein said index components comprise at least one security and cash.

16. The system of claim 15, wherein said cash is shifted to said at least one security to increase risk.

17. The system of claim 15, wherein said at least one security is shifted to said cash to decrease risk.

18. A system for implementing a constant volatility index, the index having an associated risk, said system comprising:

means for establishing a target level of risk at which to maintain said index;

means for monitoring said level of risk associated with said index; and

means for rebalancing said index by reallocating index components when the risk associated with said index deviates from said target level of risk, thereby at least substantially maintaining a specified risk level.

19. The system of claim 18, further comprising means for implementing a risk band to delimit a lower level of risk below said target level of risk and an upper level of risk above said target level of risk of said index, and wherein said means for rebalancing comprises means for rebalancing said index when the risk associated with said index rises above said upper level of risk or drops below said lower level of risk.

20. The system of claim 18, wherein said level of risk is measured using at least one of RiskMetric Group'"'"'s RiskGrade measure, standard deviation, variance, average shortfall, VAR, or any other similar or analogous measures.

21. The system of claim 18, wherein said means for rebalancing comprises means for reallocating assets from relatively high risk components of said index to relatively low risk components of said index when the risk associated with said index exceeds said level of risk by a predetermined level.

22. The system of claim 18, wherein said means for rebalancing comprises means for reallocating assets from relatively low risk components of said index to relatively high risk components of said index when the risk associated with said index drops below said level of risk by a predetermined level.

23. The system of claim 18, wherein said index components comprise at least one security and cash.

24. The system of claim 23, wherein said cash is shifted to said at least one security to increase risk.

25. The system of claim 23, wherein said at least one security is shifted to said cash to decrease risk.

26. A computer readable medium for implementing a constant volatility index, the index having an associated risk, said computer readable medium comprising:

computer readable instructions for establishing a target level of risk at which to maintain said index;

computer readable instructions for monitoring said level of risk associated with said index; and

computer readable instructions for rebalancing said index by reallocating index components when the risk associated with said index deviates from said target level of risk, thereby at least substantially maintaining a specified risk level.

27. The computer readable medium of claim 26, further comprising computer readable instructions for implementing a risk band to delimit a lower level of risk below said target level of risk and an upper level of risk above said target level of risk of said index, and wherein said computer readable instructions for rebalancing comprises computer readable instructions for rebalancing said index when the risk associated with said index rises above said upper level of risk or drops below said lower level of risk.

28. The computer readable medium of claim 26, wherein said level of risk is measured using at least one of RiskMetric Group'"'"'s RiskGrade measure, standard deviation, variance, average shortfall, VAR, or any other similar or analogous measures.

29. The computer readable medium of claim 26, wherein said computer readable instructions for rebalancing comprises computer readable instructions for reallocating assets from relatively high risk components of said index to relatively low risk components of said index when the risk associated with said index exceeds said level of risk by a predetermined level.

30. The computer readable medium of claim 26, wherein said computer readable instructions for rebalancing comprises computer readable instructions for reallocating assets from relatively low risk components of said index to relatively high risk components of said index when the risk associated with said index drops below said level of risk by a predetermined level.

31. The computer readable medium of claim 26, wherein said index components comprise at least one security and cash.

32. The computer readable medium of claim 31, wherein said cash is shifted to said at least one security to increase risk.

33. The computer readable medium of claim 31, wherein said at least one security is shifted to said cash to decrease risk.

34. A computer-implemented or assisted method for implementing a constant volatility index, said computer-implemented or assisted method comprising the steps of:

(1) identifying a target level of risk at which to maintain said index;

(2) allocating components in said index in a manner such that a risk associated with said index attains said target level of risk;

(3) setting an acceptable range of risk associated with said target risk (4) monitoring said level of risk associated with said index; and

(5) rebalancing said index by reallocating said components when the risk associated with said index deviates from said acceptable range of risk, thereby at least substantially maintaining a specified risk level.

35. The computer-implemented or assisted method of claim 34, wherein said level of risk is measured using at least one of RiskMetric Group'"'"'s RiskGrade measure, standard deviation, variance, average shortfall, VAR, or any other similar or analogous measures.

36. The computer-implemented or assisted method of claim 34, wherein said step of ebalancing comprises reallocating assets from relatively high risk components of said index to relatively low risk components of said index, if the risk associated with said index exceeds said level of risk by a predetermined level.

37. The computer-implemented or assisted method of claim 34, wherein said step of rebalancing comprises reallocating assets from relatively low risk components of said index to relatively high risk components of said index, if the risk associated with said index drops below said level of risk by a predetermined level.

38. The computer-implemented or assisted method of claim 34, wherein said index components comprise at least one security and cash.

39. The computer-implemented or assisted method of claim 38, wherein said cash is shifted to said at least one security to increase risk.

40. The computer-implemented or assisted method of claim 38, wherein said at least one security is shifted to said cash to decrease risk.