System and method for asymmetric offsets in a risk management system

• US 20090076982A1
• Filed: 11/13/2008
• Published: 03/19/2009
• Est. Priority Date: 09/10/2004
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Ginberg, Dmitriy, Yoo, Tae S., Michaels, Dale A., Gogol, Edward
• Granted Patent: US 8,073,754 B2
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• 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
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A system and method for using asymmetrical offsets for products in a risk management analysis system are disclosed. Conventional systems assign symmetrical offsets for products, that is, if two products have an 80% correlation they each would be assigned an offset of 80% with respect to each other. However, it is desirable to allow for asymmetrical offsets. In the disclosed system and method, when two products have a correlation of 80%, one may be assigned an offset of 75% and the other may be assigned an offset of 80%. There are many reasons to vary the offset between the products. The varying offset may reflect an asymmetry in the risk in one of the products, such as being traded in an illiquid market or in a less desirable venue. The varying offset may correct for an imbalance in spread credits due to special charges from intra spreading.

Claims

1. A computer implemented method of analyzing risk, the method comprising:

determining, in a computer, a correlation between first and second products, the first product being associated with a first margin requirement and the second product being associated with a second margin requirement;

computing, by the computer, a first risk offset based on the correlation, the first risk offset comprising an adjustment to the first margin requirement;

computing, by the computer, a second risk offset based on the correlation and a compensating factor, the second risk offset being different from the first risk offset, the second risk offset comprising an adjustment to the second margin requirement; and

computing, by the computer, a combined margin requirement for the first and second products based on the first margin requirement adjusted as a function of the first risk offset and the second margin requirement adjusted as a function of the second risk offset.

2. The computer implemented method of claim 1, wherein the compensating factor comprises an asymmetry in the risk of the first product as compared to the second product.

3. The computer implemented method of claim 1, wherein the compensating factor comprises a correction.

4. The computer implemented method of claim 1, wherein the first and second products form a spread.

5. The computer implemented method of claim 1, further comprising:

analyzing a portfolio comprising a plurality of products; and

identifying the first and second products from the portfolio based on the correlation.

6. A system for analyzing risk, the system comprising:

a processor configured to determine a correlation between first and second products, the first product being associated with a first margin requirement and the second product being associated with a second margin requirement;

the processor being further configured to compute a first risk offset based on the correlation, the first risk offset comprising an adjustment to the first margin requirement, the processor being further configured to compute a second risk offset based on the correlation and a compensating factor, the second risk offset being different from the first risk offset, the second risk offset comprising an adjustment to the second margin requirement; and

the processor being further configured to compute a combined margin requirement for the first and second products based on the first margin requirement adjusted as a function of the first risk offset and the second margin requirement adjusted as a function of the second risk offset.

7. The system of claim 6, wherein the compensating factor comprises an asymmetry in the risk of the first product as compared to the second product.

8. The system of claim 6, wherein the compensating factor comprises a correction.

9. The system of claim 6, where the first and second products form a spread.

10. A computer implemented method of analyzing risk of a portfolio comprising a plurality of products, the method comprising:

determining a first margin requirement for a first product of the plurality of products;

identifying at least one other product of the plurality of products having a correlation at least with the first product, each of the at least one other product having an associated margin requirement;

computing, by the computer, a first risk offset based on the correlation, the first risk offset comprising an adjustment to the first margin requirement;

computing for each of the at least one other product, by the computer, an associated risk offset based on the correlation and a compensating factor, the associated risk offset being different from the first risk offset, the associated risk offset comprising an adjustment to the associated margin requirement of the at least one other product; and

computing, by the computer, a combined margin requirement for the first product and each of the at least one other product based on the first margin requirement adjusted as a function of the first risk offset and the associated margin requirement of each the at least one other product adjusted as a function of the associated risk offset.

11. The computer implemented method of claim 10, wherein the compensating factor comprises an asymmetry in the risk of the first product as compared to each of the at least one other product.

12. The computer implemented method of claim 10, wherein the compensating factor comprises a correction.

13. The computer implemented method of claim 10, wherein the correlation comprises a spread.

14. The computer implemented method of claim 10, wherein the correlation comprises one of a spread, calendar spread or butterfly spread.

15. A system for analyzing risk of a portfolio of products, the system comprising:

a processor configured to determine a first margin requirement for a first product of the plurality of products;

the processor being further configured to identify at least one other product of the plurality of products having a correlation at least with the first product, each of the at least one other product having an associated margin requirement;

the processor being further configured to compute a first risk offset based on the correlation, the first risk offset comprising an adjustment to the first margin requirement, the processor being further configured to compute, for each of the at least one product, an associated risk offset based on the correlation and a compensating factor, the associated risk offset being different from the first risk offset, the associated risk offset comprising an adjustment to the associated margin requirement of the at least one other product; and

the processor being further configured to compute a combined margin requirement for the first and second products based on the first margin requirement adjusted as a function of the first risk offset and the associated margin requirement of each of the at least one product adjusted as a function of the associated risk offset.

16. The system of claim 15, wherein the compensating factor comprises an asymmetry in the risk of the first product as compared to each of the at least one other product.

17. The system of claim 15, wherein the compensating factor comprises a correction.

18. The system of claim 15, wherein the correlation comprises a spread

19. The system of claim 15, wherein the correlation comprises one of a calendar spread or butterfly spread.