SYSTEM AND METHOD FOR DYNAMIC PATH- AND STATE-DEPENDENT STOCHASTIC CONTROL ALLOCATION

• US 20120023038A1
• Filed: 10/03/2011
• Published: 01/26/2012
• Est. Priority Date: 02/21/2007
• Status: Active Grant

• Current Assignee: David K.A. Mordecai
• Original Assignee: David K.A. Mordecai
• Inventors: Mordecai, David K. A.
• Granted Patent: US 8,812,397 B2
• Time in Patent Office: Days
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 20/10 specially adapted for electronic funds transfer [EFT] systems; specially adapted for home banking systems
• CPC Class Codes: G06Q 30/0238 at point-of-sale [POS]
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• 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

The invention includes a system and process that employs contractual bargaining with agent-based computational methods for the dynamic allocation, optimization, and pricing of contingent rights and obligations between multiple counterparties with overlapping interests. The processes employ a dynamic and endogenous hierarchy or tiering of binding incentive compatible contingent strategies, which may include optimal liquidation policies for matched assets and liabilities based upon stochastic volume/price schedule related to statistically non-stationary supply/demand elasticities and order-flow, as well as variations in market microstructure. The invention includes a dynamic open system with distributed stochastic control of strategic interactions among dynamic optimizing agents across random states, wherein the actions of any one affects the joint costs and benefits for all the agents.

Claims

1. A method, the method comprising:

providing, by at least one processor, a plurality of electronic agents, each of the plurality of electronic agents associated with a respective counterparty of a plurality of counterparties, and configured to transact on behalf of the respective counterparty;

providing access, for each of the plurality of electronic agents, to a respective first account, each respective first account comprising value associated with inventory pledged by a respective counterparty;

providing access, for each of the plurality of electronic agents, to a respective second account, each second account comprising a margin reserve proportional to the value of each of the respective counterparties'"'"' pro rata contribution to accumulated value associated with an inventory pool;

providing access, for each of the plurality of electronic agents, to a respective third account, each respective third account usable to receive or pay capital associated with disposition of at least some of the inventory pool;

storing, in at least one database accessible to the at least one processor, electronic contractual rules that govern how each of the electronic agents transacts on behalf of the respective counterparties;

storing, in the at least one database, electronic functional weights representing one or more of subjective, probability and decision states associated with each of the plurality of counterparties; and

transacting, by at least two of the plurality of electronic agents on behalf of at least two of the respective counterparties, as a function of the electronic contractual rules and the electronic functional weights, and one or more of the first account, the second account and the third account.

2. The method of claim 1, further comprising receiving, by at least one of the plurality of electronic agents, electronic information representing value of the inventory pledged by the at least one agent of the respective counterparty, wherein the value of the inventory is periodically determined by at least one broker who generates a market for the inventory.

3. The method of claim 2, wherein the transacting by at least one of the electronic agents is based at least on a current value of the inventory of the at least one respective counterparty.

4. The method of claim 1, further comprising receiving, by at least one of the plurality of electronic agents, electronic information representing value of at least some of the inventory pool, wherein the value of the at least some of the inventory pool is periodically determined by at least one broker who generates a market for the inventory.

5. The method of claim 4, wherein the transacting by at least one of the electronic agents is based at least on a current value of the inventory pool.

6. The method of claim 1, wherein the first account is an endowment pledge account, the second account is a spread reserve account, and the third account is a contingent payoff account.

7. The method of claim 1, wherein the value associated with the inventory is one or more of:

a residual right to control the inventory, an estimated value of the inventory, cash flows from the residual rights to control, and the inventory itself.

8. The method of claim 1, wherein the electronic contractual rules include one or more of rules and procedures embedded within each of a plurality bilateral agreements between a plurality of counterparties.

9. The method of claim 1, wherein the transacting includes one or more of:

providing complex insurance;

hedging;

funding;

providing specialty finance;

providing alternative risk transfer;

providing finite/financial reinsurance and tradeable insurance;

providing insurance derivatives;

providing insurance-wrapped defeasance accounting with conduit financing;

providing collateralized credit;

providing debit-versus-credit intermediation;

providing customized risk overlays;

providing one or more of reference indices, baskets and portfolios; and

providing industry loss warranty.

10. The method of claim 9, wherein the reference includes indices, baskets and portfolios, and involve one or more of life, equity, fixed income, credit, commodity, futures contracts, instruments, indices and baskets.

11. The method of claim 1, wherein the margin reserve represents a value of the inventory, relative volatility and other risk associated with the inventory.

12. The method of claim 1, wherein at least one of the electronic agents pays into the second account in response to a change in the value associated with the inventory.

13. The method of claim 1, wherein the inventory is used to secure one or more of:

bundles of insurance contracts;

master/netting arrangements;

back to back financial instruments;

swaps;

options;

repos;

futures/forwards;

letters of credit;

guaranties;

warranties;

receivables;

cash; and

contingent liabilities.

14. The method of claim 1, wherein the inventory pool comprises the total of the inventory associated with all of the plurality of counterparties.

15. The method of claim 1, wherein at least two of the first, second and third accounts are combined in a single account.

16. The method of claim 1, further comprising accounting among one or more of the electronic agents for probable outcomes as a function of activities of each of the plurality of parties.

17. The method of claim 16, wherein the accounting includes calculating evolution of at least two of the counterparties'"'"' respective states and paths based on adaptive decision-making by at least one or more of the agents individually or collectively.

18. The method of claim 17, wherein the accounting by at least one or more of the electronic agents, individually or collectively, employs at least one Bayesian model.

19. A system, the system comprising:

at least one processor operatively coupled to one or more processor readable media, wherein the at least one processor is programmed and configured to;

provide a plurality of electronic agents, each of the plurality of electronic agents associated with a respective counterparty of a plurality of counterparties, and configured to transact on behalf of the respective counterparty;

provide access, for each of the plurality of electronic agents, to a respective first account, each respective first account comprising value associated with inventory pledged by a respective counterparty;

provide access, for each of the plurality of electronic agents, to a respective second account, each second account comprising a margin reserve proportional to the value of each of the respective counterparties'"'"' pro rata contribution to accumulated value associated with an inventory pool;

provide access, for each of the plurality of electronic agents, to a respective third account, each respective third account usable to receive or pay capital associated with disposition of at least some of the inventory pool;

store, in at least one database accessible to the at least one processor, electronic contractual rules that govern how each of the electronic agents transacts on behalf of the respective counterparties;

store, in the at least one database, electronic functional weights representing one or more of subjective, probability and decision states associated with each of the plurality of counterparties; and

transact, by at least two of the plurality of electronic agents on behalf of at least two of the respective counterparties, as a function of the electronic contractual rules and the electronic functional weights, and one or more of the first account, the second account and the third account.

20. The system of claim 19, wherein the at least one processor is further programmed and configured to cause at least one of the plurality of electronic agents to receive electronic information representing value of the inventory pledged by the at least one agent of the respective counterparty, wherein the value of the inventory is periodically determined by at least one broker who generates a market for the inventory.

21. The system of claim 20, wherein the transacting by at least one of the electronic agents is based at least on a current value of the inventory of the at least one respective counterparty.

22. The system of claim 19, wherein the at least one processor is further programmed and configured to cause at least one of the plurality of electronic agents to receive electronic information representing value of at least some of the inventory pool, wherein the value of the at least some of the inventory pool is periodically determined by at least one broker who generates a market for the inventory.

23. The system of claim 22, wherein the transacting by at least one of the electronic agents is based at least on a current value of the inventory pool.