SYSTEM AND METHOD FOR ESTIMATING CONDUIT LIQUIDITY REQUIREMENTS IN ASSET BACKED COMMERCIAL PAPER

• US 20080086404A1
• Filed: 10/30/2007
• Published: 04/10/2008
• Est. Priority Date: 11/03/2000
• Status: Active Grant

• Current Assignee: JP Morgan Chase Bank, N.A. (JP Morgan Chase & Co)
• Original Assignee: JP Morgan Chase Bank, N.A. (JP Morgan Chase & Co)
• Inventors: Pellegrini, Roger, Wise, Eric, Rhinelander, John
• Granted Patent: US 7,890,407 B2
• Time in Patent Office: Days
• US Class Current: 705/36R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• CPC Class Codes: G06Q 40/06 Asset management; Financial planning or analysis

Abstract

A method and system for financial modeling to predict the amount of liquidity needed to support a portfolio of assets that is being financed in the commercial paper market, or any other market that is sensitive to the provision of liquidity. As the ability to access these markets is related to the rating of the assets, the model simulates rating movements over time and uses historical funding information of like assets to make estimates of future funding needs. Many aspects of the funding (draw) process are simulated (i.e., likelihood of draw, likelihood of continuing draw, and extent of draw amount). The result of the model is an estimate of reduced liquidity needs that is less than if the underlying assets were guaranteed individually, providing economic savings for the liquidity provider. A model is also described that predicts the required characteristics of a group of institutions jointly functioning as liquidity provider to the pool.

Claims

1-44. -44. (canceled)

45. A method for managing liquidity requirements of asset backed commercial paper, the method comprising the steps of:

identifying a full liquidity commitment for a financial instrument of at least one financial institution wherein the financial instrument is guaranteed by a plurality of assets;

determining a rating for each of the plurality of assets guaranteeing the financial instrument for a predetermined period of time wherein the rating provides an indication of creditworthiness of an issuer of each asset;

determining a rating transition probability for each of the plurality of assets for the predetermined period of time based at least in part on statistics indicating a likelihood of a rating transition based on historical data;

determining whether a draw event occurred for a time period prior to the predetermined time period;

determining a probability of a continuing draw event over the predetermined time period, if the draw event is determined;

determining a probability of a new draw event for a time period after the predetermined time period, if no draw event is determined;

wherein the steps of determining a rating, determining a rating transition probability, determining whether a draw event occurred, determining a probability of a continuing draw event and determining a probability of a new draw event are performed for a plurality of predetermined time periods;

performing a simulation thereby predicting one or more liquidity funding needs associated with the plurality of assets; and

estimating a reduced liquidity level for the financial instrument that is less than the full liquidity commitment for the financial instrument wherein the reduced liquidity level satisfies the one or more liquidity funding needs as determined by the simulation.

55. Computer executable software code transmitted as an information signal, the code for managing liquidity requirements of asset backed commercial paper, the code comprising:

code to identify a full liquidity commitment for a financial instrument of at least one financial institution wherein the financial instrument is guaranteed by a plurality of assets;

code to determine a rating for each of the plurality of assets guaranteeing the financial instrument for a predetermined period of time wherein the rating provides an indication of creditworthiness of an issuer of each asset,

code to determine a rating transition probability for each of the plurality of assets for the predetermined period of time based at least in part on statistics indicating a likelihood of a rating transition based on historical data; and

code to determine whether a draw event occurred for a time period prior to the predetermined time period;

code to determine a probability of a continuing draw event over the predetermined time period, if the draw event is determined;

code to determine a probability of a new draw event for a time period after the predetermined time period, if no draw event is determined;

wherein the code to determine a rating, the code to determine a rating transition probability, the code to determine whether a draw event occurred, the code to determine a probability of a continuing draw event and the code to determine a probability of a new draw event are executed for a plurality of predetermined time periods;

code to perform a simulation thereby predicting one or more liquidity funding needs associated with the plurality of assets; and

code to estimate a reduced liquidity level for the financial instrument that is less than the full liquidity commitment for the financial instrument wherein the reduced liquidity level satisfies the one or more liquidity funding needs as determined by the simulation.

56. A computer-readable medium having computer executable software code stored thereon, the code for managing liquidity requirements of asset backed commercial paper, the code comprising:

code to identify a full liquidity commitment for a financial instrument of at least one financial institution wherein the financial instrument is guaranteed by a plurality of assets;

code to determine a rating for each of the plurality of assets guaranteeing the financial instrument for a predetermined period of time wherein the rating provides an indication of creditworthiness of an issuer of each asset;

code to determine a rating transition probability for each of the plurality of assets for the predetermined period of time based at least in part on statistics indicating a likelihood of a rating transition based on historical data; and

code to determine whether a draw event occurred for a time period prior to the predetermined time period;

code to determine a probability of a continuing draw event over the predetermined time period, if the draw event is determined;

code to determine a probability of a new draw event for a time period after the predetermined time period, if no draw event is determined;

wherein the code to determine a rating, the code to determine a rating transition probability, the code to determine whether a draw event occurred, the code to determine a probability of a continuing draw event and the code to determine a probability of a new draw event are executed for a plurality of predetermined time periods;

code to perform a simulation thereby predicting one or more liquidity funding needs associated with the plurality of assets; and

code to estimate a reduced liquidity level for the financial instrument that is less than the full liquidity commitment for the financial instrument wherein the reduced liquidity level satisfies the one or more liquidity funding needs as determined by the simulation.

57. A programmed computer for managing liquidity requirements of asset backed commercial paper, comprising:

a memory having at least one region for storing computer executable program code; and

a processor for executing the program code stored in the memory;

wherein the program code comprises;

code to identify a full liquidity commitment for a financial instrument of at least one financial institution wherein the financial instrument is guaranteed by a plurality of assets;

code to determine a rating for each of the plurality of assets guaranteeing the financial instrument for a predetermined period of time wherein the rating provides an indication of creditworthiness of an issuer of each asset;

code to determine a rating transition probability for each of the plurality of assets for the predetermined period of time based at least in part on statistics indicating a likelihood of a rating transition based on historical data; and

code to determine whether a draw event occurred for a time period prior to the predetermined time period;

code to determine a probability of a continuing draw event over the predetermined time period, if the draw event is determined;

code to determine a probability of a new draw event for a time period after the predetermined time period, if no draw event is determined;

wherein the code to determine a rating, the code to determine a rating transition probability, the code to determine whether a draw event occurred, the code to determine a probability of a continuing draw event and the code to determine a probability of a new draw event are executed for a plurality of predetermined time periods;

code to perform a simulation thereby predicting one or more liquidity funding needs associated with the plurality of assets; and

code to estimate a reduced liquidity level for the financial instrument that is less than the full liquidity commitment for the financial instrument wherein the reduced liquidity level satisfies the one or more liquidity funding needs as determined by the simulation.