SYSTEM AND METHOD FOR HYBRID SPREADING FOR RISK MANAGEMENT
First Claim
1. A computer implemented method of managing risk associated with a portfolio, the portfolio comprising a plurality of positions, each of the plurality of positions being associated with at least one product traded on an exchange, the method comprising:
- (a) computing, in a processor, a first spread between a first two or more positions of the plurality of positions, each of the first two or more positions being associated with a different product, the first spread being computed based on a first algorithm;
(b) computing, in the processor, a second spread based on at least one second position of the plurality of positions, the second spread being computed based on a second algorithm different from the first algorithm; and
(c) computing, in the processor, a margin requirement for the portfolio based the first and second spreads.
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Abstract
A risk management system and method is disclosed which utilizes a flexible and configurable set of spreading techniques which may be incorporated into existing risk management software to enhance functionality, flexibility and accuracy. In the disclosed embodiments, multiple different types of spreading are combined to allow for a more accurate assessment of risk. In one exemplary embodiment, a subset of the derivative products held by a futures trader are first analyzed by the scanning based spreading methodology. Typically, futures products in the same class of products (e.g. equity futures or agricultural futures) would be analyzed together by the scanning based spreading methodology. Then an average delta would be calculated for that subset. Using that delta, that subset would then be analyzed in relation to the remaining derivative products (not in the subset) using a delta based spreading methodology. The delta for the subset could be computed in a variety of ways including scaling the deltas for each product, tying the delta to a fixed time period or other methods.
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Citations
18 Claims
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1. A computer implemented method of managing risk associated with a portfolio, the portfolio comprising a plurality of positions, each of the plurality of positions being associated with at least one product traded on an exchange, the method comprising:
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(a) computing, in a processor, a first spread between a first two or more positions of the plurality of positions, each of the first two or more positions being associated with a different product, the first spread being computed based on a first algorithm; (b) computing, in the processor, a second spread based on at least one second position of the plurality of positions, the second spread being computed based on a second algorithm different from the first algorithm; and (c) computing, in the processor, a margin requirement for the portfolio based the first and second spreads. - View Dependent Claims (2, 3, 4, 5, 6)
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7. A system for managing risk associated with a portfolio, the portfolio comprising a plurality of positions, each of the plurality of positions being associated with at least one product traded on an exchange, the method comprising:
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a first spread processor operative to compute a first spread between a first two or more positions of the plurality of positions, each of the first two or more positions being associated with a different product, the first spread being computed based on a first algorithm; a second spread processor operative to compute a second spread based on at least one second position of the plurality of positions, the second spread being computed based on a second algorithm different from the first algorithm; and a risk assessment processor coupled with the first and second spread processors and operative to compute a margin requirement for the portfolio based the first and second spreads. - View Dependent Claims (8, 9, 10, 11, 12)
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13. A computer implemented method of managing risk associated with a portfolio, the portfolio comprising a plurality of positions, each of the plurality of positions being associated with at least one product traded on an exchange, the method comprising:
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forming, in a computer, a scanning based inter-commodity spread based on at least one target position and at least one non-target position of the plurality of positions; identifying, by the computer, remaining delta of each of the at least one target position and each of the at least one non-target position; scaling, in the computer, the remaining delta of each of the at least one non-target position; and aggregating, in the computer, the scaled remaining delta of each of the at least one non-target position with each of the remaining delta of the at least one target position. - View Dependent Claims (14)
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15. A computer implemented method of managing risk associated with a portfolio, the portfolio comprising a plurality of positions, each of the plurality of positions being associated with at least one product traded on an exchange, the method comprising:
forming a scanning based inter-commodity spread based on at least two positions of the plurality of positions of the portfolio and at least one position not in the portfolio.
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16. A system for managing risk associated with a portfolio, the portfolio comprising a plurality of positions, each of the plurality of positions being associated with at least one product traded on an exchange, the system comprising:
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forming, in a computer, a scanning based inter-commodity spread based on at least one target position and at least one non-target position of the plurality of positions; identifying, by the computer, remaining delta of each of the at least one target position and each of the at least one non-target position; scaling, in the computer, the remaining delta of each of the at least one non-target position; and aggregating, in the computer, the scaled remaining delta of each of the at least one non-target position with each of the remaining delta of the at least one target position. - View Dependent Claims (17)
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18. A system managing risk associated with a portfolio, the portfolio comprising a plurality of positions, each of the plurality of positions being associated with at least one product traded on an exchange, the system comprising:
forming a scanning based inter-commodity spread based on at least two positions of the plurality of positions of the portfolio and at least one position not in the portfolio.
Specification