Initial Margining Using Decayed Scenarios

• US 20160035024A1
• Filed: 07/29/2014
• Published: 02/04/2016
• Est. Priority Date: 07/29/2014
• Status: Abandoned Application

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Shah, Jalpan, Yin, Jingbin
• Application Number:
  US14/446,032
• Publication Number:
  US 20160035024A1
• Time in Patent Office: Days
• US Class Current: 1/1
• CPC Class Codes: G06Q 40/04 Trading; Exchange, e.g. stocks, commodities, derivatives or currency exchange

Abstract

A margin requirement is determined for a financial product. A present value of the financial position is obtained, and scenario projected values of the financial position at a future date are calculated for a plurality of loss risk scenarios in accordance with a plurality of scenario curves representative of the plurality of loss risk scenarios, respectively. An initial margin requirement is determined based on the obtained present value and the calculated scenario projected values. Each scenario curve of the plurality of scenario curves is configured to forecast the respective loss risk scenario of the plurality of loss risk scenarios as if looking forward from the future date. In some cases, when the financial position includes a swaption that expires before the future date, the swaption is converted to a seasoned swap if the swaption resides in-the-money.

Claims

1. A computer implemented method for determining a margin requirement for a financial position, the computer implemented method comprising:

obtaining a present value of the financial position;

calculating, with a processor, scenario projected values of the financial position at a future date for a plurality of loss risk scenarios in accordance with a plurality of scenario curves representative of the plurality of loss risk scenarios, respectively;

determining, with the processor, an initial margin requirement based on the obtained present value and the calculated scenario projected values;

wherein each scenario curve of the plurality of scenario curves is configured to forecast the respective loss risk scenario of the plurality of loss risk scenarios as if looking forward from the future date.

2. The computer implemented method of claim 1, wherein each scenario curve of the plurality of scenario curves incorporates a time-based decay into the scenario projected values, the time-based decay being in accordance with the future date.

3. The computer implemented method of claim 1, wherein calculating the scenario projected values comprises adjusting each scenario curve of the plurality of scenario curves to forecast the respective loss risk scenario of the plurality of loss risk scenarios as of the future date.

4. The computer implemented method of claim 3, wherein adjusting each scenario curve comprises determining rate fixings for each date between a current date and the future date for each loss risk scenario of the plurality of loss risk scenarios.

5. The computer implemented method of claim 3, wherein adjusting each scenario curve comprises incorporating a precursor segment into each scenario curve of the plurality of scenario curves.

6. The computer implemented method of claim 5, wherein the precursor segment is configured in accordance with discount factors implied from a base curve for the financial position.

7. The computer implemented method of claim 5, wherein the financial position comprises an interest rate swap, and wherein incorporating the precursor segment comprises:

determining discount factors based on a base curve for the interest rate swap; and

determining points of the precursor segment based on the determined discount factors.

8. The computer implemented method of claim 7, wherein determining the discount factors is implemented for each business day from a present date up to and including the future date.

9. The computer implemented method of claim 7, wherein calculating the scenario projected values comprises:

discounting, in accordance with one of the determined discount factors, an amount of a payment to be made between a present date and the future date; and

adjusting the scenario projected values to reflect the discounted amount of the payment.

10. The computer implemented method of claim 1, wherein the financial position comprises a swaption that expires before the future date, and wherein calculating the scenario projected values comprises:

converting the swaption to a seasoned swap if the swaption resides in-the-money; and

disregarding the swaption if the swaption resides out-of-the-money.

11. The computer implemented method of claim 1, wherein calculating the scenario projected values comprises:

rolling each scenario curve ahead by a number of days between a present date and the future date; and

filling a gap created by rolling each scenario curve of the plurality of scenario curves with a respective patch segment, wherein each patch segment is determined in accordance with discount factors implied from a base curve for the financial product.

12. The computer implemented method of claim 1, wherein obtaining the present value comprises calculating the present value in accordance with a base curve.

13. A system for determining a margin requirement for a financial position, the system comprising:

a scenario curve generator configured to generate a plurality of scenario curves representative of a plurality of loss risk scenarios, respectively, for the financial position;

a price calculator configured to calculate scenario projected values of the financial position at a future date in accordance with the plurality of scenario curves; and

an initial margin calculator configured to determine an initial margin requirement based on the calculated scenario projected values and a present value of the financial position;

wherein each scenario curve of the plurality of scenario curves is configured to forecast the respective loss risk scenario of the plurality of loss risk scenarios as if looking forward from the future date.

14. The system of claim 13 wherein the scenario curve generator is further configured to adjust each scenario curve of the plurality of scenario curves to forecast the respective loss risk scenario of the plurality of loss risk scenarios as of the future date.

15. The system of claim 14 wherein the scenario curve generator is further configured to determine rate fixings for each date between a current date and the future date for each loss risk scenario of the plurality of loss risk scenarios.

16. The system of claim 14 wherein the scenario curve generator is further configured to incorporate a precursor segment into each scenario curve of the plurality of scenario curves.

17. A system for determining a margin requirement for a financial position, the system comprising:

a processor;

a memory coupled with the processor;

first logic stored in the memory and executable by the processor to cause the processor to obtain a present value of the financial position;

second logic stored in the memory and executable by the processor to cause the processor to generate a plurality of scenario curves for a plurality of loss risk scenarios, respectively, each scenario curve of the plurality of scenario curves being configured to forecast the respective loss risk scenario of the plurality of loss risk scenarios as if looking forward from a future date;

third logic stored in the memory and executable by the processor to cause the processor to calculate a scenario projected value of the financial position at the future date for each loss risk scenario of the plurality of loss risk scenarios in accordance with the respective scenario curve of the plurality of scenario curves; and

fourth logic stored in the memory and executable by the processor to cause the processor to determine an initial margin requirement based on the obtained present value and the calculated scenario projected values.

18. The system of claim 17 wherein the first logic is further executable by the processor to cause the processor to calculate the present value in accordance with a base curve.

19. The system of claim 17 wherein the second logic is further executable by the processor to cause the processor to roll each scenario curve ahead by a number of days between a present date and the future date, and fill a gap created by the rolling with a respective patch segment.

20. The system of claim 19 wherein each patch segment is determined in accordance with discount factors implied from a base curve for the financial product.