TECHNIQUES FOR REDUCING DELTA VALUES OF CREDIT RISK POSITIONS IN ONLINE TRADING OF CREDIT DERIVATIVES

• US 20090125451A1
• Filed: 10/06/2008
• Published: 05/14/2009
• Est. Priority Date: 11/14/2007
• Status: Active Grant

• Current Assignee: Creditex Group, Inc. (TP ICAP Plc)
• Original Assignee: Creditex, Inc. (TP ICAP Plc)
• Inventors: Crowley, Christopher J., Rowell, Mark A., Doerr, F. Charles
• Granted Patent: US 8,571,965 B2
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/02 Banking, e.g. interest calculation or account maintenance credit or loans G06Q40/03
• 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

Techniques for reducing delta values of credit risk positions in online trading of credit derivatives are disclosed. In one particular exemplary embodiment, a method for reducing delta values may comprise: receiving, in an online trading system of credit derivatives, a plurality of credit risk positions submitted by a plurality of trader clients, each credit risk position having a delta value and a maturity date, wherein each trader client'"'"'s submission is unknown to other trader clients: identifying, from the plurality of trader clients, at least two trader clients who hold offsetting credit risk positions on at least two maturity dates; determining delta offsets to be applied to delta values of the credit risk positions held by the at least two trader clients and having the at least two maturity dates, such that an overall delta of each of the at least two trader clients'"'"' credit risk positions remains substantially unchanged after the application of the delta offsets; calculating, based on the determined delta offsets, notional amounts of credit derivative trades needed to realize the delta offsets; and executing the credit derivative trades among the at least two trader clients.

Claims

1. A computer-implemented method for reducing delta values of credit risk positions in an online trading system of credit derivatives, the method comprising:

receiving, in the online trading system of credit derivatives, a plurality of credit risk positions submitted by a plurality of trader clients, each credit risk position having a delta value and a maturity date, wherein each trader client'"'"'s submission is unknown to other trader clients;

identifying, from the plurality of trader clients, at least two trader clients who hold offsetting credit risk positions on at least two maturity dates;

determining delta offsets to be applied to delta values of the credit risk positions held by the at least two trader clients and having the at least two maturity dates, such that an overall delta of each of the at least two trader clients'"'"' credit risk positions remains substantially unchanged after the application of the delta offsets;

calculating, based on the determined delta offsets, notional amounts of credit derivative trades needed to realize the delta offsets; and

executing the credit derivative trades among the at least two trader clients.

2. The method according to claim 1, further comprising:

designating a single sector of credit derivatives for a delta neutral auction session.

3. The method according to claim 1, further comprising:

inviting the plurality of trader clients to upload the plurality of credit risk positions to the online trading system of credit derivatives.

4. The method according to claim 3, wherein the plurality of credit risk positions are uploaded to the online trading system of credit derivatives in a spreadsheet format.

5. The method according to claim 3, further comprising:

inviting the plurality of trader clients to upload one or more prices associated with the plurality of credit risk positions, the one or more prices being selected from a group consisting of;

a bid price, an offer price, and a suggested mid price.

6. The method according to claim 3, wherein information associated with each of the plurality of credit risk positions uploaded includes:

a reference entity name;

a seniority level;

a maturity date; and

an amount that reflects either a delta position at the maturity date or an equivalent net CDS notional amount.

7. The method according to claim 1, further comprising:

receiving, from the plurality of trader clients, delta values of the plurality of credit risk positions.

8. The method according to claim 1, further comprising:

calculating, by the online trading system, delta values of the plurality of credit risk positions.

9. The method according to claim 1, further comprising:

identifying a first trader client and a second trader client, wherein the first trader holds a first credit risk position that at least partially offsets a second credit risk position held by the second trader client, the first and second credit risk positions sharing a first maturity date, wherein the first trader holds a third credit risk position that at least partially offsets a fourth credit risk position held by the second trader client, the third and fourth credit risk positions sharing a second maturity date, and wherein the first credit risk position at least partially offsets the third credit risk position and the second credit risk position at least partially offsets the fourth credit risk position.

10. The method according to claim 9, further comprising:

determining delta values for the first, second, third, and fourth credit risk positions; and

causing each of the delta offsets to have the smallest absolute delta value out of the delta values.

11. The method according to claim 1, further comprising:

filtering out a subset of the plurality of credit risk positions that have absolute delta values below a predetermined threshold.

12. The method according to claim 1, further comprising:

determining, by the online trading system of credit derivatives, one or more price levels for executing the credit derivative trades among the at least two trader clients.

13. The method according to claim 12, wherein the one or more price levels are determined based on a third-party benchmark.

14. The method according to claim 12, wherein the one or more price levels are determined in a mid-fixing process based on bid and offer prices submitted by at least some of the plurality of trader clients.

15. The method according to claim 12, wherein the one or more price levels are determined based on suggested mid prices submitted by at least some of the plurality of trader clients.

16. The method according to claim 1, further comprising:

offering a trader client an opportunity to opt out of a potential trade involving a credit risk position.

17. The method according to claim 1, further comprising:

calculating a profit and loss (P&

L) value for a trader client based on a difference between a suggested mid price submitted by the trader client and a price level determined by the online trading system of credit derivatives.

18. The method according to claim 1, further comprising:

providing one or more visual aids to the trader client via a graphical user interface (GUI), the visual aids being selected from a group consisting of;

(1) one or more informational spreadsheets displaying credit risk positions, price levels, and profit and loss (P&

L) values; and

(2) one or more graphs displaying price levels, delta values, or changes thereof.

19. The method according to claim 1, further comprising:

limiting a maximum gap between the at least two maturity dates.

20. The method according to claim 1, further comprising:

querying each trader client to determine how that trader client views positive and negative signs of a delta value in relation to buy or sell transactions; and

processing credit risk positions submitted by that trader client in a manner consistent with the query result.

21. An electronic trading system of credit derivatives, the system comprising:

a processor;

at least one storage device coupled to the processor;

a user interface coupled to the processor via one or more communication networks;

wherein the processor is adapted to communicate with the at least one storage device and the user interface to execute instructions to perform the following tasks;

receiving, in the online trading system of credit derivatives, a plurality of credit risk positions submitted by a plurality of trader clients, each credit risk position having a delta value and a maturity date, wherein each trader client'"'"'s submission is unknown to other trader clients;

identifying, from the plurality of trader clients, at least two trader clients who hold offsetting credit risk positions on at least two maturity dates;

determining delta offsets to be applied to delta values of the credit risk positions held by the at least two trader clients and having the at least two maturity dates, such that an overall delta of each of the at least two trader clients'"'"' credit risk positions remains substantially unchanged after the application of the delta offsets;

calculating, based on the determined delta offsets, notional amounts of credit derivative trades needed to realize the delta offsets; and

executing the credit derivative trades among the at least two trader clients.