System and method for estimating conduit liquidity requirements in asset backed commercial paper
First Claim
1. A computer implemented method for managing liquidity requirements of asset backed commercial paper, wherein the method is executed by a programmed computer processor, the computer implemented method comprising the steps of:
- identifying, via the programmed computer processor, a full liquidity commitment for a financial instrument of at least one financial institution wherein the financial instrument is guaranteed by a plurality of assets;
determining, via the programmed computer processor, a rating for each of the plurality of assets guaranteeing the financial instrument for a predetermined period of time, wherein the rating provides an indication of creditworthiness of an issuer of each asset;
determining, via the programmed computer processor, a rating transition probability for each of the plurality of assets for the predetermined period of time based at least in part on statistics indicating a likelihood of a rating transition based on historical data;
determining, via the programmed computer processor, whether a draw event occurred for a time period prior to the predetermined time period;
determining, via the programmed computer processor, a probability of a continuing draw event over the predetermined time period, if the draw event is determined;
determining, via the programmed computer processor, a probability of a new draw event for a time period after the predetermined time period, if no draw event is determined;
wherein the steps of determining a rating, determining a rating transition probability, determining whether a draw event occurred, determining a probability of a continuing draw event and determining a probability of a new draw event are performed for a plurality of predetermined time periods;
performing, via the programmed computer processor, a simulation thereby predicting one or more liquidity funding needs associated with the plurality of assets; and
estimating, via the programmed computer processor, a reduced liquidity level for the financial instrument that is less than the full liquidity commitment for the financial instrument wherein the reduced liquidity level satisfies the one or more liquidity funding needs as determined by the simulation.
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Abstract
A method and system for financial modeling to predict the amount of liquidity needed to support a portfolio of assets that is being financed in the commercial paper market, or any other market that is sensitive to the provision of liquidity. As the ability to access these markets is related to the rating of the assets, the model simulates rating movements over time and uses historical funding information of like assets to make estimates of future funding needs. Many aspects of the funding (draw) process are simulated (i.e., likelihood of draw, likelihood of continuing draw, and extent of draw amount). The result of the model is an estimate of reduced liquidity needs that is less than if the underlying assets were guaranteed individually, providing economic savings for the liquidity provider. A model is also described that predicts the required characteristics of a group of institutions jointly functioning as liquidity provider to the pool.
323 Citations
13 Claims
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1. A computer implemented method for managing liquidity requirements of asset backed commercial paper, wherein the method is executed by a programmed computer processor, the computer implemented method comprising the steps of:
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identifying, via the programmed computer processor, a full liquidity commitment for a financial instrument of at least one financial institution wherein the financial instrument is guaranteed by a plurality of assets; determining, via the programmed computer processor, a rating for each of the plurality of assets guaranteeing the financial instrument for a predetermined period of time, wherein the rating provides an indication of creditworthiness of an issuer of each asset; determining, via the programmed computer processor, a rating transition probability for each of the plurality of assets for the predetermined period of time based at least in part on statistics indicating a likelihood of a rating transition based on historical data; determining, via the programmed computer processor, whether a draw event occurred for a time period prior to the predetermined time period; determining, via the programmed computer processor, a probability of a continuing draw event over the predetermined time period, if the draw event is determined; determining, via the programmed computer processor, a probability of a new draw event for a time period after the predetermined time period, if no draw event is determined; wherein the steps of determining a rating, determining a rating transition probability, determining whether a draw event occurred, determining a probability of a continuing draw event and determining a probability of a new draw event are performed for a plurality of predetermined time periods; performing, via the programmed computer processor, a simulation thereby predicting one or more liquidity funding needs associated with the plurality of assets; and estimating, via the programmed computer processor, a reduced liquidity level for the financial instrument that is less than the full liquidity commitment for the financial instrument wherein the reduced liquidity level satisfies the one or more liquidity funding needs as determined by the simulation. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10)
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11. A non-transitory computer readable medium having stored therein computer executable software code for managing liquidity requirements of asset backed commercial paper, the code when executed by a computer processor performs the method steps comprising:
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identifying a full liquidity commitment for a financial instrument of at least one financial institution wherein the financial instrument is guaranteed by a plurality of assets; determining a rating for each of the plurality of assets guaranteeing the financial instrument for a predetermined period of time wherein the rating provides an indication of creditworthiness of an issuer of each asset; determining a rating transition probability for each of the plurality of assets for the predetermined period of time based at least in part on statistics indicating a likelihood of a rating transition based on historical data; and determining whether a draw event occurred for a time period prior to the predetermined time period; determining a probability of a continuing draw event over the predetermined time period, if the draw event is determined; determining a probability of a new draw event for a time period after the predetermined time period, if no draw event is determined; wherein the steps of determining a rating, determining a rating transition probability, determining whether a draw event occurred, determining a probability of a continuing draw event and determining a probability of a new draw event are executed for a plurality of predetermined time periods; performing a simulation thereby predicting one or more liquidity funding needs associated with the plurality of assets; and estimating a reduced liquidity level for the financial instrument that is less than the full liquidity commitment for the financial instrument wherein the reduced liquidity level satisfies the one or more liquidity funding needs as determined by the simulation.
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12. A non-transitory computer-readable medium having stored therein computer executable software code for managing liquidity requirements of asset backed commercial paper, the code when executed by a computer processor performs the method steps comprising:
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identifying a full liquidity commitment for a financial instrument of at least one financial institution wherein the financial instrument is guaranteed by a plurality of assets; determining a rating for each of the plurality of assets guaranteeing the financial instrument for a predetermined period of time wherein the rating provides an indication of creditworthiness of an issuer of each asset; determining a rating transition probability for each of the plurality of assets for the predetermined period of time based at least in part on statistics indicating a likelihood of a rating transition based on historical data; and determining whether a draw event occurred for a time period prior to the predetermined time period; determining a probability of a continuing draw event over the predetermined time period, if the draw event is determined; determining a probability of a new draw event for a time period after the predetermined time period, if no draw event is determined; wherein the steps of determining a rating, determining a rating transition probability, determining whether a draw event occurred, determining a probability of a continuing draw event and determining a probability of a new draw event are executed for a plurality of predetermined time periods; performing a simulation thereby predicting one or more liquidity funding needs associated with the plurality of assets; and estimating a reduced liquidity level for the financial instrument that is less than the full liquidity commitment for the financial instrument wherein the reduced liquidity level satisfies the one or more liquidity funding needs as determined by the simulation.
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13. A programmed computer for managing liquidity requirements of asset backed commercial paper, comprising:
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a memory having at least one region for storing computer executable program code; and a processor for executing the program code stored in the memory;
wherein the processor is operatively connected to the memory and wherein the program code when executed by the programmed computer performs the method steps comprising;identifying a full liquidity commitment for a financial instrument of at least one financial institution wherein the financial instrument is guaranteed by a plurality of assets; determining a rating for each of the plurality of assets guaranteeing the financial instrument for a predetermined period of time wherein the rating provides an indication of creditworthiness of an issuer of each asset; determining a rating transition probability for each of the plurality of assets for the predetermined period of time based at least in part on statistics indicating a likelihood of a rating transition based on historical data; and determining whether a draw event occurred for a time period prior to the predetermined time period; determining a probability of a continuing draw event over the predetermined time period, if the draw event is determined; determining a probability of a new draw event for a time period after the predetermined time period, if no draw event is determined; wherein the steps of determining a rating, determining a rating transition probability, determining whether a draw event occurred, determining a probability of a continuing draw event and determining a probability of a new draw event are executed for a plurality of predetermined time periods; performing a simulation thereby predicting one or more liquidity funding needs associated with the plurality of assets; and estimating a reduced liquidity level for the financial instrument that is less than the full liquidity commitment for the financial instrument wherein the reduced liquidity level satisfies the one or more liquidity funding needs as determined by the simulation.
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Specification