ASYMMETRIC AND VOLATILITY MARGINING FOR RISK OFFSET

• US 20070294158A1
• Filed: 08/27/2007
• Published: 12/20/2007
• Est. Priority Date: 01/07/2005
• Status: Abandoned Application

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Patel, Ketan, Stephen, Amy, Glinberg, Dmitriy, Michaels, Dale
• Application Number:
  US11/845,198
• Publication Number:
  US 20070294158A1
• Time in Patent Office: Days
• US Class Current: 705/36.00R
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A system and method for analyzing, administering and managing risk for portfolio including at least one product having substantially asymmetric risk exposures is disclosed. The system and method includes determining a first margin for a first position associated with a financial product, wherein the financial product represents an event having disparate risk positions, and determining a second margin for a second position associated with the financial product, wherein the second margin is related to the first margin as an exponential function. The system and method further include calculating a cash flow according to the first margin for the first position and the second margin for the second position.

Claims

1. A method for asymmetrically analyzing a financial risk, the method comprising:

determining a first margin for a first position associated with a financial product, wherein the financial product represents an event having disparate risk positions;

determining a second margin for a second position associated with the financial product, wherein the second margin is related to the first margin as an exponential function; and

calculating a cash flow according to the first margin for the first position and the second margin for the second position.

2. The method of claim 1, wherein the financial product comprises a credit derivative.

3. The method of claim 2, wherein the credit derivative comprises a credit default swap.

4. The method of claim 1, wherein the financial product comprises a weather event based swap.

5. The method of claim 1, wherein the second margin for the short position includes a capped value.

6. The method of claim 5, wherein the capped value is defined as a max loss value.

7. The method of claim 1, wherein calculating the cash flow comprises calculating the cash flow as a function of a notional value of the financial product.

8. The method of claim 1, wherein calculating the cash flow comprises calculating the cash flow as a percentage of a notional value of the financial product.

9. A method of analyzing the risk associated with a portfolio of products traded on an exchange, the method comprising:

defining a portfolio to include a plurality of products, wherein each of the plurality of products includes a first margin associated with a first position and a second margin associated with a second position;

calculating the first margin for one of the plurality of products having an asymmetric risk;

calculating the second margin for the one of the plurality of products wherein the second margin is determined according to an exponential relationship to price for the one of the plurality of products; and

determining a margin for the portfolio including the first and second calculated margins.

10. The method of claim 9, wherein the one of the plurality of products having asymmetric risk positions comprises a credit derivative.

11. The method of claim 9, wherein the one of the plurality of products having asymmetric risk positions comprises a credit default swap.

12. The method of claim 9, wherein the one of the plurality of products having asymmetric risk positions comprises a weather-based exchange trade financial instrument.

13. The method of claim 9, wherein the second margin associated with the second position includes a capped value.

14. The method of claim 13, wherein the capped value is defined as a percentage of a max loss value.

15. The method of claim 9, wherein calculating the first margin associated with the first position comprising calculating the first margin according to a linear relationship to price for the one of the plurality of products.

16. A system for managing risk associated with a portfolio of products traded on an exchange, the system comprising:

a processor;

a memory in communication with the processor, the memory configured to store a program logic, wherein the program logic is executable on the processor and is configured to;

determine a margin for a plurality of products within the portfolio, wherein the margin for a position of at least one of the plurality of products is determined as an exponential function; and

determine a margin requirement representative of the risk associated with the plurality of products within the portfolio based on at least the position of the at least one of the plurality of products.

17. The system of claim 16, wherein the at least one of the plurality of products comprises a financial instrument having an event triggered payout.

18. The system of claim 17, wherein the financial instrument having an event triggered payout comprises a credit default swap.

19. The system of claim 16, wherein the exponential function includes a capped value.

20. The method of claim 19, wherein the capped value is defined as a percentage of a max loss value.