System and method of margining fixed payoff products
First Claim
1. A computer-implemented method of computing a margin requirement for a portfolio, the portfolio comprising at least one product having an associated fixed payoff value based on an occurrence of one of a finite set of at least two outcomes of an event, the method comprising:
- computing a product value of each of the at least one product;
determining, for each of the at least one product, other outcomes of the finite set, other than the at least two outcomes, that may occur for the event which affect the associated fixed payoff with respect to at least one of the at least two outcomes and not redundant in view of other of the other outcomes;
generating, for each of the at least one product, an array defining a risk value for each of the at least two outcomes and each of the other outcomes, the risk value comprising one of a gain or loss of the product value associated with the particular outcome;
adjusting each of the risk values based on a discount related to the likelihood of occurrence of the associated outcome;
determining, for each of the at least two outcomes and each of the other outcomes, an aggregate risk value of the risk values for each of the at least one product for the particular outcome;
determining a maximum aggregate risk value comprising the aggregate risk value representing the largest loss from among the aggregate risk values for each of the at least two outcomes and each of the other outcomes; and
computing a margin requirement equal to the difference between the product value and the maximum aggregate risk value.
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Accused Products
Abstract
A system and method is disclosed for determining performance bonds related to fixed payoff products, i.e. contracts which payoff a fixed amount based on the outcome of an underlying event regardless of the particular value of the underlying event. The worst outcome of the overall portfolio, which may contain more than one instrument, is calculated. This permits the portfolio to have both long and short positions on the same underlying event and offsets, e.g. long (bought but not closed out) and short (sold but not closed out) positions, among instruments in the portfolio are factored in. A universe of outcomes is constructed including single events with single outcomes, and the probability thereof, an single events with multiple outcomes, each with a probability thereof. This universe is implemented in a matrix probabilities on different outcomes, also referred to as “strikes.” Each strike/outcome then has an associated price and probability, typically factored together as single value reflective of both. Events with low probability will have low values, resulting in a lower margin requirement, as will be explained below. The margin requirement/performance bond is then set equal to the amount of the maximum loss that the portfolio can sustain for any possible outcome of the underlying event, adjusted for the probability of the outcome.
67 Citations
24 Claims
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1. A computer-implemented method of computing a margin requirement for a portfolio, the portfolio comprising at least one product having an associated fixed payoff value based on an occurrence of one of a finite set of at least two outcomes of an event, the method comprising:
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computing a product value of each of the at least one product; determining, for each of the at least one product, other outcomes of the finite set, other than the at least two outcomes, that may occur for the event which affect the associated fixed payoff with respect to at least one of the at least two outcomes and not redundant in view of other of the other outcomes; generating, for each of the at least one product, an array defining a risk value for each of the at least two outcomes and each of the other outcomes, the risk value comprising one of a gain or loss of the product value associated with the particular outcome; adjusting each of the risk values based on a discount related to the likelihood of occurrence of the associated outcome; determining, for each of the at least two outcomes and each of the other outcomes, an aggregate risk value of the risk values for each of the at least one product for the particular outcome; determining a maximum aggregate risk value comprising the aggregate risk value representing the largest loss from among the aggregate risk values for each of the at least two outcomes and each of the other outcomes; and computing a margin requirement equal to the difference between the product value and the maximum aggregate risk value. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12)
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13. A system for computing a margin requirement for a portfolio, the portfolio comprising at least one product having an associated fixed payoff value based on an occurrence of one of a finite set of at least two outcomes of an event, the system comprising:
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a risk processor operative to compute a product value of each of the at least one product; a possible outcome generator operative to determine, for each of the at least one product, other outcomes of the finite set, other than the at least two outcomes, that may occur for the event which affect the associated fixed payoff with respect to at least one of the at least two outcomes and not redundant in view of other of the other outcomes; a risk array value generator coupled with the possible outcome generator and operative to generate, for each of the at least one product, an array defining a risk value for each of the at least two outcomes and each of the other outcomes, the risk value comprising one of a gain or loss of the product value associated with the particular outcome; a probability generator coupled with the possible outcome generator and the risk array value generator and operative to adjust each of the risk values based on a discount related to the likelihood of occurrence of the associated outcome; the risk processor being coupled with the risk array generator so as to access the risk array and being further operative to determine, for each of the at least two outcomes and each of the other outcomes, an aggregate risk value of the risk values for each of the at least one product for the particular outcome; the risk processor being further operative to determine a maximum aggregate risk value comprising the aggregate risk value representing the largest loss from among the aggregate risk values for each of the at least two outcomes and each of the other outcomes and compute a margin requirement equal to the difference between the product value and the maximum aggregate risk value. - View Dependent Claims (14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24)
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Specification