MAXIMUM RUNNING SPREAD

• US 20090228398A1
• Filed: 03/04/2008
• Published: 09/10/2009
• Est. Priority Date: 03/04/2008
• Status: Abandoned Application

• Current Assignee: Credit Derivatives Research LLC
• Original Assignee: Credit Derivatives Research LLC
• Inventors: Klein, David, Rosenzweig, Arthur, Backshall, Timothy
• Application Number:
  US12/042,049
• Publication Number:
  US 20090228398A1
• 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 40/06 Asset management; Financial planning or analysis

Abstract

A method of determining index component spreads, includes determining an index DV01 according to index component DV01, determining an implied credit default swap (CDS) notional according to a contract value of a basis point, setting a standard recovery rate as a predetermined constant value, determining a maximum running spread according to the standard recovery rate, implied CDS notional, and the contract value of the basis point, and replacing any index component spread that exceeds the maximum running spread by the maximum running spread for determining the index value.

Claims

1. A method of determining index component spreads, comprising:

determining an index DV01 according to index component DV01;

determining an implied credit default swap (CDS) notional according to a contract value of a basis point;

setting a standard recovery rate as a predetermined constant value;

determining a maximum running spread according to the standard recovery rate, implied CDS notional, and the contract value of the basis point; and

replacing any index component spread that exceeds the maximum running spread by the maximum running spread for determining the index value.

2. The method of claim 1, wherein the maximum running spread being determined by a product of the implied CDS notional with a value of one being subtracted by the standard recovery rate.

3. The method of claim 2, wherein the maximum running spread further comprises of dividing, the product of the implied CDS notional with the value of one subtracted by the standard recovery rate, with the contract value of the basis point.

4. The method of claim 1, wherein the standard recovery rate is a constant value according to certain preset conditions.

5. The method of claim 1, further comprising of assigning index components a certain predetermined weight.

6. The method of claim 1, further comprising of determining the index component spread according to whether they are trade running or trade upfront.

7. The method of claim 1, further comprising of using the maximum running spread in determination of the index value for the index components that have ceased trading.

8. The method of claim 1, determining the index according to the maximum running spread.

9. The method of claim 8, further comprising of determining a settlement value from the difference between the index value at a settlement date and the contract index value, and multiplying by the DV01.

10. The method of claim 1, wherein the implied notional of a contract being determined at the time the index is constructed based on the individual DV01'"'"'s of the index members.

11. A set of computer executable instructions for determining index component spreads, stored in a computer readable media, comprising:

setting an index DV01;

determining an implied credit default swap (CDS) notional according to a contract value of a basis point and the DV01;

determining a maximum running spread according to the implied CDS notional, and the DV01; and

replacing any index component spread that exceeds the maximum running spread by the maximum running spread for determining the index value.

12. The method of claim 11, wherein the maximum running spread being determined by a product of the implied CDS notional with a value of one being subtracted by a predetermined constant value.

13. The method of claim 12, wherein the maximum running spread further comprises of dividing, the product of the implied CDS notional with the value of one subtracted by the predetermined constant value, with the contract value of the basis point.

14. The method of claim 11, wherein the predetermined constant value being set according to certain variables.

15. The method of claim 11, further comprising of assigning index components a certain predetermined weight.

16. The method of claim 11, further comprising of determining the index component spread according to whether they are trade running or trade upfront.

17. The method of claim 11, further comprising of using the maximum running spread in determination of the index value for the index components that have ceased trading.

18. The method of claim 11, determining the index according to the maximum running spread.

19. The method of claim 18, further comprising of determining a settlement value from the difference between the index value at a settlement date and the contract index value, and multiplying by the DV01.

20. The method of claim 11, wherein the implied notional of a contract being determined at the time the index is constructed based on the individual DV01'"'"'s of the index members.

21. A system of determining index component spreads, comprising:

a means for determining a preset number of components in the index;

a means for setting an index DV01 for the components in the index;

a means for determining an implied credit default swap (CDS) notional according to a contract value of a basis point;

a means for setting a standard recovery rate as a predetermined constant value;

a means for determining a maximum running spread according to the standard recovery rate, implied CDS notional, and the contract value of the basis point; and

a means for replacing any index component spread that exceeds the maximum running spread by the maximum running spread for determining the index value.

22. The system of claim 21, wherein the means for determining the maximum running spread comprises by determining by a product of the implied CDS notional with a value of one being subtracted by the standard recovery rate.

23. The system of claim 21, wherein the means for determining the maximum running spread further comprises of dividing, the product of the implied CDS notional with the value of one subtracted by the standard recovery rate, with the contract value of the basis point.

24. The system of claim 21, wherein the means for determining the preset number of index components further comprises determining certain eligible names and ranking the eligible names.

25. The system of claim 21, wherein the preset number of index components using the maximum running spread in determination of the index value for the index components that have a credit event.

26. A method of determining a maximum running spread of a unit, comprising:

determining a first value according to a first component of the unit;

determining a second value according to a contract value of a basis point;

setting a standard recovery rate as a predetermined constant value;

determining the maximum running spread according to the standard recovery rate, second value, first value, and the contract value of the basis point; and

replacing any spread that exceeds the maximum running spread by the maximum running spread.

27. The method of claim 26, wherein the maximum running spread being determined by a product of the second value with a value of one being subtracted by the standard recovery rate.

28. The method of claim 26, wherein the maximum running spread further comprises of dividing, the second value with the value of one subtracted by the standard recovery rate, with the contract value of the basis point.

29. The method of claim 26, wherein the standard recovery rate is a constant value according to certain preset conditions.

30. The method of claim 26, further comprising of assigning the components of the unit a certain predetermined weight.