System and method for dynamic path- and state-dependent stochastic control allocation

• US 7,925,581 B2
• Filed: 02/21/2008
• Issued: 04/12/2011
• Est. Priority Date: 02/21/2007
• Status: Expired due to Fees

• Current Assignee: David K.A. Mordecai
• Original Assignee: David K.A. Mordecai
• Inventors: Mordecai, David K. A.
• Primary Examiner(s): Merchant; Shahid R
• Assistant Examiner(s): AMELUNXEN, BARBARA J
• Application Number:
  US12/035,347
• Publication Number:
  US 20080215480A1
• Time in Patent Office: 1,146 Days
• Field of Search: 705/14.38, 705/35, 705/36.R, 705/37, 705/38
• US Class Current: 705/38
• CPC Class Codes: G06Q 20/10 specially adapted for electronic funds transfer [EFT] systems; specially adapted for home banking systems
• CPC Class Codes: G06Q 30/0238 at point-of-sale [POS]
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• 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

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.

Claims

1. A method for dynamically allocating control rights with regard to at least one respective history and at least one possible future path in order 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 one or more processor readable media;

providing one or more processors operatively coupled to the one or more processor readable media;

storing on the one or more processor readable media at least one database that includes;

electronic counterparty information representing a plurality of counterparties;

electronic agreement information representing agreements related to the extension of credit associated with the plurality of counterparties;

electronic control rights information representing respective rights to control inventory for at least one of the respective counterparties;

providing, by the one or more processors, at least one respective agreement related to the extension of credit to be executed by each of a plurality of counterparties;

receiving by the one or more processors, from each of the counterparties an executed respective agreement representing that the counterparties have become contractually bound;

receiving, by the one or more processors, from at least some of the counterparties respective commitments of at least one respective control right to respective inventory for securing the extension of credit, the at least one respective control right representing one or more rights that each of the at least some of the counterparties have to control the respective inventory;

determining, by the one or more processors, an expected present value of at least one of the at least one respective control right associated with the respective inventory at the time of the respective commitment, based on at least the respective inventory'"'"'s at least one history and at least one possible future path;

aggregating, by the one or more processors, the value of the respective control rights to the respective inventory into an inventory pool;

charging calculating, by the one or more processors, a respective margin amount to for each of the at least some of the counterparties, wherein the respective margin amount is proportional to the respective value of each of the at least some counterparties'"'"' pro rata inventory control rights contribution and a function derived from one or more of 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;

receiving, from each of the at least some of the counterparties, the respective margin amount;

securing, by the one or more processors, the extension of credit with the inventory pool;

receiving, by the one or more processors, a notification that at least two of the plurality of counterparties exchange respective paths representing that one of the at least two of the counterparties assumes another counterparty'"'"'s at least one of;

at least one state; and

at least one path,

wherein the at least one state and the at least one path are associated with at least one of the respective control rights;

simulating, by the one or more processors, states and paths for the at least two parties;

accounting, by the one or more processors, for evolving contractual rights and duties among each of the at least some of the counterparties based on at least the simulated states and paths; and

allocating, by the one or more processors, the control rights to at least some of the inventory in the inventory pool after at least one respective agreement term is not met by at least one of the counterparties.

2. The method of claim 1, wherein the respective agreement sets forth at least one of respective intermediation requirements and incentives associated with respective expectations of the counterparties.

3. The method of claim 2, wherein the expectations are defined as a function of state-dependent, path-dependent, or state-dependent and path-dependent simulations.

4. The method of claim 2, further comprising implementing at least one of the respective intermediation requirements to minimize costs and maximize benefits associated with each counterparties'"'"' performance.

5. The method of claim 1, wherein the governing includes at least one of value, volatility, value at risk, asset liquidity, and interest.

6. The method of claim 1, further comprising securing the contractual rights and duties.

7. The method of claim 6, wherein the securing includes offsetting payments associated with the contractual rights and duties relative to each of the respective simulated states and paths.

8. The method of claim 1, further comprising accounting for probable outcomes as a function of activities of each of the plurality of parties.

9. The method of claim 8, wherein the accounting comprises an orthogonal garch methodology.

10. A system for dynamically allocating control rights with regard to at least one respective history and at least one possible future path in order 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:

one or more processor readable media;

one or more processors operatively coupled to the one or more processor readable media;

at least one database stored on the one or more processor readable media, the at least one database including;

electronic counterparty information representing a plurality of counterparties;

electronic agreement information representing agreements related to the extension of credit associated with the plurality of counterparties;

the one or more media having instructions for causing the following steps to be performed by the one or more processors;

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 received from each of the counterparties representing that the counterparties have become contractually bound;

receiving from at least some of the counterparties respective commitments of at least one respective control right to respective inventory received for securing the extension of credit, the at least one respective control right representing one or more rights that each of the at least some of the counterparties have to control the respective inventory;

determining an expected present value of at least one of the at least one respective control right associated with the respective inventory at the time of the respective commitment, based on at least the respective inventory'"'"'s at least one history and at least one possible future path;

aggregating the value of the respective control rights to the respective inventory into an inventory pool;

calculating a respective margin amount for each of the at least some of the counterparties, wherein the respective margin amount is proportional to the respective value of each of the at least some counterparties'"'"' pro rata inventory control rights contribution and a function derived from one or more of 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;

receiving, from each of the at least some of the counterparties, the respective margin amount;

securing the extension of credit with the inventory pool;

receiving a notification that at least two of the plurality of parties exchange respective paths representing that one of the at least two of the counterparties assumes another counterparty'"'"'s at least one of;

at least one state; and

at least one path,

wherein the at least one state and the at least one path are associated with at least one of the respective control rights;

simulating states and paths for the at least two parties;

accounting for evolving contractual rights and duties among each of the at least some of the counterparties based on at least the simulated states and paths; and

allocating the control rights to at least some of the inventory in the inventory pool after at least one respective agreement term is not met by at least one of the counterparties.

11. The system of claim 10, further comprising:

a funder account for the extension of credit; and

a collateral buffer account that represents at least some of the inventory that is available for transfer, wherein at least some of the agents operate to map the counterparties'"'"' objective states to conditional probabilities.

12. The system of claim 11, wherein the conditional probabilities are mapped as conditional expectations onto conditional utilities, and the conditional utilities are mapped onto conditional payoffs resulting in a contingent payoff function of the at least some agents.

13. The system of claim 10, wherein the agents employ a library of dynamic and endogenous hierarchy of rules corresponding to a future or history of states and paths of the agents.

14. The system of claim 13, wherein the rules encompass the continuum of contingencies materially relevant to transactions among the counterparties.

15. The system of claim 13, wherein the rules are used to formulate contracts to be entered into between the funders, the counterparties.

16. The system of claim 10, wherein at least one of the agents transacts on behalf of one of the respective counterparties.

17. The system of claim 16, wherein the at least agent transacts based upon a state-dependent utility function, a path of realized states and simulated paths of future states.

18. The system of claim 17, wherein the at least one agent may choose to:

pay a termination penalty to exit the system, wherein termination penalty is based upon an opt-out function;

or

pay a substitution/replacement option premium in order to exchange a path history with another agent, wherein the premium is based upon a path-switching function.

19. The system of claim 18, wherein the payments are deducted from at least one account accessible by the respective agent engaged in opting out or switching paths.

20. The system of claim 10, wherein the system is a dynamic open system for distributed stochastic control of strategic interactions among dynamic optimizing agents across random states, and further wherein the actions of any one affects the joint costs and benefits for all the agents.