Liquidity Margin
First Claim
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1. A method of determining risks associated with a portfolio of financial instruments, the method comprising:
- (a) determining at a processor a concentration based liquidity charge which takes into account the effect of portfolio risk;
(b) determining at a processor a floor liquidity charge based on bid-ask spreads for positions in the portfolio; and
(c) assigning a liquidity risk value that is the higher of the concentration based liquidity charge or the floor liquidity charge.
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Abstract
Systems and methods are provided for determining margin requirements for portfolios that are illiquid or have concentrated positions. Surveys with sample portfolios that include credit default swaps and that ask for liquidity charges are distributed to clearing members. Answers to the surveys are analyzed to develop a liquidity risk model. The liquidity risk model is subsequently used when setting margin requirements.
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Citations
20 Claims
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1. A method of determining risks associated with a portfolio of financial instruments, the method comprising:
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(a) determining at a processor a concentration based liquidity charge which takes into account the effect of portfolio risk; (b) determining at a processor a floor liquidity charge based on bid-ask spreads for positions in the portfolio; and (c) assigning a liquidity risk value that is the higher of the concentration based liquidity charge or the floor liquidity charge. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13)
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14. A method comprising:
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(a) identifying target financial products that are illiquid or that are subject to concentrated ownership; (b) receiving responses to a survey that asks respondents to estimate liquidity risks for portfolios that include the financial products in (a); (c) performing, at a processor, a regression analysis of the responses received in (b) to determine a formula for determining liquidity risks of portfolios that include the target financial products in (a). - View Dependent Claims (15, 16)
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17. A non-transitory tangible computer-readable medium that when executed cause a computer device to perform the steps comprising:
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(a) determining a concentration based liquidity charge which takes into account the effect of portfolio risk; (b) determining a floor liquidity charge based on bid-ask spreads for positions in the portfolio; and (c) assigning a liquidity risk value that is the higher of the concentration based liquidity charge or the floor liquidity charge. - View Dependent Claims (18, 19, 20)
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Specification