Method for managing risk in markets related to commodities delivered over a network

• US 20060026095A1
• Filed: 09/28/2005
• Published: 02/02/2006
• Est. Priority Date: 03/11/1999
• Status: Active Grant

• Current Assignee: Morgan Stanley Services Group Inc. (Morgan Stanley)
• Original Assignee: Morgan Stanley Dean Witter & Company (Morgan Stanley)
• Inventors: Rajaraman, Rajesh, Alvarado, Fernando L.
• Granted Patent: US 7,739,173 B2
• Time in Patent Office: Days
• US Class Current: 705/38
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• 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 40/06 Asset management; Financial planning or analysis

Abstract

A system, method, software, and portfolios for managing risk in markets relating to a commodity delivered over a network are described, in which a market participant constructs portfolios of preferably liquid price risk instruments in proportions that eliminate the Spatial Price Risk for the market participant'"'"'s underlying position. Techniques are also disclosed for constructing and evaluating new price risk instruments and other sets of positions, as well as identifying arbitrage opportunities in those markets.

Claims

1-6. -6. (canceled)

7. A method for hedging a set of underlying positions at a prospective time in a market related to a commodity delivered over a network, comprising the steps of:

estimating a plurality of distribution factors indicating effects on one or more congestible lines in the network due to transfers of the commodity at respective locations in the network; and

producing portfolio of price risk instruments for the market based on the estimated distribution factors.

8. The method for hedging according to claim 7, wherein the step of producing the portfolio includes the step of eliminating an effect of congestion prices for congestible lines on prices of the commodity at respective locations in the network.

9. The method according to claim 7, wherein the step of producing the portfolio includes selecting a portfolio y of price risk instruments, such that z′

A−

y′

P′

A=0, where A represents the distribution factors, P represents the available market of price instruments, and z represents the underlying position.

10. (canceled)

11. A method for identifying arbitrage opportunities among a plurality of available price risk instruments in a market related to a commodity delivered over a network, comprising the step of:

estimating a plurality of distribution factors indicating effects on one or more congestible lines in the network due to transfers of the commodity at respective locations in the network; and

producing a portfolio of price risk instruments from among the available price risk instruments based on the estimated distribution factors, wherein a number of the price risk instruments is greater than a number of the one or more congestible lines.

12. The method according to claim 11, wherein the step of producing the portfolio includes selecting a portfolio y of price risk instruments, such that y′

P′

A=0, where A represents the distribution factors, and P represents the available market of price instruments.

13-20. -20. (canceled)