Liquidation Cost Calculation

• US 20170161836A1
• Filed: 02/24/2017
• Published: 06/08/2017
• Est. Priority Date: 08/04/2014
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Glinberg, Dmitriy, Olszewski, Adam, Li, Edmund, Landa, Feliks
• Granted Patent: US 10,643,282 B2
• Time in Patent Office: Days
• CPC Class Codes: G05B 2219/35211 Using a search tree
• 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

A set of estimated allocations N_est(X₁) through N_est(X_k) of portfolio positions to products X₁ through X_k may be determined, with products X₁ through X_k including portfolio products and spread-traded products based on some of the portfolio products. Utilizing the set of estimated allocations, an optimized liquidation cost LC_opt may be designated. Data indicating at least a portion of a performance bond based on the optimized liquidation LC_opt may be output.

Claims

1. A method for optimizing allocation of a plurality of products in a portfolio, comprising:

accessing, by a computer system, an array data structure corresponding to the plurality of products in the portfolio, wherein for each of a plurality of outright-traded products in the portfolio, the array data structure defines a portfolio position in the outright-traded product;

identifying, by the computer system, data defining a liquidation of products X₁ through X_k, wherein (i) the products X₁ through X_k include the plurality of outright-traded products and further include one or more spread-traded products, (ii) each of the spread-traded products represents a combination of two or more of the outright-traded products, and (iii) each of the products X₁ through X_k respectively corresponds to one of cost functions C₁ through C_k for estimating a liquidation cost based on notional value;

determining, by the computer system, estimated allocations N_est(X₁) through N_est(X_k) of the portfolio positions to products X₁ through X_k;

determining, by the computer system using the estimated allocations N_est(X₁) through N_est(X_k), allocations N(X₁) through N(X_k) corresponding to a liquidation cost LC less than a liquidation cost LC_est corresponding to the estimated allocations, wherein

2. The method of claim 1, wherein the determining the estimated allocations comprises:

ordering the spread-traded products in the liquidations based on the cost functions corresponding to the spread-traded products,

progressing through each of the ordered spread-traded products and allocating at least a portion of the portfolio positions to hypothetical trades in the spread-traded products, and

allocating any remainder of the portfolio positions to hypothetical outright trades.

3. The method of claim 1, wherein the determining the estimated allocations comprises determining estimated allocations based on one or more search trees, including:

generating multiple search trees, each of the search trees having multiple branches;

determining a liquidation cost corresponding to each of at least a portion of the branches in at least a portion of the search trees; and

selecting a set of estimated allocations corresponding to the branch having a lowest corresponding liquidation cost.

4. The method of claim 1, wherein the determining the estimated allocations comprises:

determining a first set of estimated allocations by ordering the spread-traded products in the liquidations based on the cost functions corresponding to the spread-traded products, progressing through each of the ordered spread-traded products and allocating at least a portion of the portfolio positions to hypothetical trades in the spread-traded products, and allocating any remainder of the portfolio positions to hypothetical outright trades;

determining a second set of estimated allocations based on one or more search trees;

determining which of the first set of estimated allocations and the second set of estimated allocations corresponds to a lower liquidation cost; and

selecting as the estimated allocations the one of the first set of estimated allocations and the second set of estimated allocations determined to correspond to a lower liquidation cost.

5. The method of claim 1, wherein the performing calculations to determine allocations N(X₁) through N(X_k) comprises inputting the estimated allocations as an initial condition for a search for optimized allocations.

6. The method of claim 5, wherein the designating an optimized liquidation cost LC_opt comprises:

determining that the allocations N(X₁) through N(X_k) corresponding to a liquidation cost LC less than the liquidation cost LC_est has been found, and

designating the liquidation cost LC as the optimized liquidation cost LC_opt.

7. The method of claim 5, wherein the designating an optimized liquidation cost LC_opt comprises:

determining that the allocations N(X₁) through N(X_k) corresponding to a liquidation cost LC less than the liquidation cost LC_est has not been found, and

designating the liquidation cost LC_est as the optimized liquidation cost LC_opt.

8. One or more non-transitory computer-readable media storing computer executable instructions that, when executed, cause a computer system to perform operations that include:

accessing portfolio data defining, for each of a plurality of outright-traded products, a portfolio position in the outright-traded product;

identifying data defining a liquidation set of products X₁ through X_k, wherein (i) the products X₁ through X_k include the plurality of outright-traded products and further include one or more spread-traded products, (ii) each of the spread-traded products represents a combination of two or more of the outright-traded products, and (iii) each of the products X₁ through X_k respectively corresponds to one of cost functions C₁ through C_k for estimating a liquidation cost based on notional value;

determining a set of estimated allocations N_est(X₁) through N_est(X_k) of the portfolio positions to products X₁ through X_k;

determining, using the estimated allocations N_est(X₁) through N_est(X_k), a set of allocations N(X₁) through N(X_k) corresponding to a liquidation cost LC less than a liquidation cost LC_est corresponding to the set of estimated allocations, wherein

9. The one or more non-transitory computer-readable media of claim 8, wherein determining a set of estimated allocations comprises

ordering the spread-traded products in the liquidation set based on the cost functions corresponding to the spread-traded products,

progressing through each of the ordered spread-traded products and allocating at least a portion of the portfolio positions to hypothetical trades in the spread-traded products, and

allocating any remainder of the portfolio positions to hypothetical outright trades.

10. The one or more non-transitory computer-readable media of claim 8, wherein determining a set of estimated allocations comprises determining estimated allocations based on one or more search trees, including:

generating multiple search trees, each of the search trees having multiple branches,

determining a liquidation cost corresponding to each of at least a portion of the branches in at least a portion of the search trees, and

selecting a set of estimated allocations corresponding to the branch having a lowest corresponding liquidation cost.

11. The one or more non-transitory computer-readable media of claim 8, wherein determining a set of estimated allocations comprises

determining a first set of estimated allocations by ordering the spread-traded products in the liquidation set based on the cost functions corresponding to the spread-traded products, progressing through each of the ordered spread-traded products and allocating at least a portion of the portfolio positions to hypothetical trades in the spread-traded products, and allocating any remainder of the portfolio positions to hypothetical outright trades,

determining a second set of estimated allocations based on one or more search trees,

determining which of the first set of estimated allocations and the second set of estimated allocations corresponds to a lower liquidation cost, and

selecting as the set of estimated allocation the one of the first set of estimated allocations and the second set of estimated allocations determined to correspond to a lower liquidation cost.

12. The one or more non-transitory computer-readable media of claim 8, wherein performing calculations to determine a set of allocations N(X₁) through N(X_k) comprises inputting the set of estimated allocations as an initial condition for a search for a set of optimized allocations.

13. The one or more non-transitory computer-readable media of claim 12, wherein designating an optimized liquidation cost LC_opt comprises

determining that a set of allocations N(X₁) through N(X_k) corresponding to a liquidation cost LC less than the liquidation cost LC_est has been found, and

designating the liquidation cost LC as the optimized liquidation cost LC_opt.

14. The one or more non-transitory computer-readable media of claim 12, wherein designating an optimized liquidation cost LC_opt comprises

determining that a set of allocations N(X₁) through N(X_k) corresponding to a liquidation cost LC less than the liquidation cost LC_est has not been found, and

designating the liquidation cost LC_est as the optimized liquidation cost LC_opt.

15. A computer system comprising:

at least one processor; and

at least one non-transitory memory, wherein the at least one non-transitory memory stores instructions that, when executed, cause the computer system to perform operations that include

accessing portfolio data defining, for each of a plurality of outright-traded products, a portfolio position in the outright-traded product,

identifying data defining a liquidation set of products X₁ through X_k, wherein (i) the products X₁ through X_k include the plurality of outright-traded products and further include one or more spread-traded products, (ii) each of the spread-traded products represents a combination of two or more of the outright-traded products, and (iii) each of the products X₁ through X_k respectively corresponds to one of cost functions C₁ through C_k for estimating a liquidation cost based on notional value,

determining a set of estimated allocations N_est(X₁) through N_est(X_k) of the portfolio positions to products X₁ through X_k,

determining, using the estimated allocations N_est(X₁) through N_est(X_k), a set of allocations N(X₁) through N(X_k) corresponding to a liquidation cost LC less than a liquidation cost LC_est corresponding to the set of estimated allocations, wherein

16. The computer system of claim 15, wherein determining a set of estimated allocations comprises

ordering the spread-traded products in the liquidation set based on the cost functions corresponding to the spread-traded products,

progressing through each of the ordered spread-traded products and allocating at least a portion of the portfolio positions to hypothetical trades in the spread-traded products, and

allocating any remainder of the portfolio positions to hypothetical outright trades.

17. The computer system of claim 15, wherein determining a set of estimated allocations comprises determining estimated allocations based on one or more search trees, including:

generating multiple search trees, each of the search trees having multiple branches,

determining a liquidation cost corresponding to each of at least a portion of the branches in at least a portion of the search trees, and

selecting a set of estimated allocations corresponding to the branch having a lowest corresponding liquidation cost.

18. The computer system of claim 15, wherein determining a set of estimated allocations comprises

determining a first set of estimated allocations by ordering the spread-traded products in the liquidation set based on the cost functions corresponding to the spread-traded products, progressing through each of the ordered spread-traded products and allocating at least a portion of the portfolio positions to hypothetical trades in the spread-traded products, and allocating any remainder of the portfolio positions to hypothetical outright trades,

determining a second set of estimated allocations based on one or more search trees,

determining which of the first set of estimated allocations and the second set of estimated allocations corresponds to a lower liquidation cost, and

selecting as the set of estimated allocation the one of the first set of estimated allocations and the second set of estimated allocations determined to correspond to a lower liquidation cost.

19. The computer system of claim 15, wherein performing calculations to determine a set of allocations N(X₁) through N(X_k) comprises inputting the set of estimated allocations as an initial condition for a search for a set of optimized allocations.

20. The computer system of claim 19, wherein designating an optimized liquidation cost LC_opt comprises

determining that a set of allocations N(X₁) through N(X_k) corresponding to a liquidation cost LC less than the liquidation cost LC_est has been found, and

designating the liquidation cost LC as the optimized liquidation cost LC_opt.