SYSTEM AND METHOD FOR DYNAMIC PATH- AND STATE-DEPENDENT STOCHASTIC CONTROL ALLOCATION
First Claim
1. A method for dynamically allocating control rights to offset risks and to optimize net gain or net loss associated with an inventory of at least one of assets and liabilities used to secure an extension of credit, the method comprising:
- providing at least one respective agreement related to the extension of credit to be executed by each of a plurality of counterparties;
receiving from each of the counterparties an executed respective agreement, whereby the counterparties become contractually bound;
receiving from at least some of the counterparties respective inventory for securing the extension of credit;
aggregating the respective inventory into an inventory pool;
charging a respective margin amount to each of the at least some of the counterparties, wherein the respective margin amount is proportional to an initial value of each the at least some counterparty'"'"'s pro rata inventory contribution and a function derived from state-dependent and path-dependent dynamics governing the value of that contribution over time, and further wherein the respective margin amount is subject to change over time;
securing the extension of credit with the inventory pool; and
allocating the control rights to at least some of the inventory in the inventory pool in case at least one respective agreement term is not met by at least one of the counterparties.
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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.
32 Citations
20 Claims
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1. A method for dynamically allocating control rights to offset risks and to optimize net gain or net loss associated with an inventory of at least one of assets and liabilities used to secure an extension of credit, the method comprising:
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providing at least one respective agreement related to the extension of credit to be executed by each of a plurality of counterparties; receiving from each of the counterparties an executed respective agreement, whereby the counterparties become contractually bound; receiving from at least some of the counterparties respective inventory for securing the extension of credit; aggregating the respective inventory into an inventory pool; charging a respective margin amount to each of the at least some of the counterparties, wherein the respective margin amount is proportional to an initial value of each the at least some counterparty'"'"'s pro rata inventory contribution and a function derived from state-dependent and path-dependent dynamics governing the value of that contribution over time, and further wherein the respective margin amount is subject to change over time; securing the extension of credit with the inventory pool; and allocating the control rights to at least some of the inventory in the inventory pool in case at least one respective agreement term is not met by at least one of the counterparties. - View Dependent Claims (2, 3, 4, 5)
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6. A method for managing a plurality of transactions for a plurality of parties, the method comprising:
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simulating states and paths for each of the plurality of parties in connection with the plurality of transactions; accounting for evolving contractual rights and duties among the plurality of parties, wherein the accounting includes determining decision paths and allocation of rights and obligations across a plurality of each of the plurality of parties'"'"' respective simulated states and paths; mitigating risk and optimizing net gains or net losses associated with each of the transactions as a function of the accounting; and enforcing at least one of the plurality of transactions for each of the plurality of parties. - View Dependent Claims (7, 8, 9, 10, 11)
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12. A system for dynamically allocating control rights to offset risks and to optimize a net gain or net loss associated with an inventory of at least one of assets and liabilities used to secure an extension of credit, the system comprising:
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at least one respective agreement related to the extension of credit to be executed by each of a plurality of counterparties; a plurality of agents operable to interface with the counterparties; an executed respective agreement received from each of the counterparties, whereby the counterparties become contractually bound; respective inventory received from at least some of the counterparties for securing the extension of credit; an inventory pool comprising of the aggregated respective inventory; and a respective margin amount charged to each of the at least some of the counterparties, wherein the respective margin amount is proportional to an initial value of each the at least some counterparties'"'"' pro rata inventory contribution and a function derived from state-dependent and path-dependent dynamics governing the value of that contribution over time, and further wherein the respective margin amount is subject to change over time; wherein the extension of credit is secured with the inventory pool, and further wherein the control rights to at least some of the inventory in the inventory pool are allocated in case at least one respective agreement term is not met by at least one of the counterparties. - View Dependent Claims (13, 14, 15, 16, 17, 18, 19, 20)
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Specification