Dynamic reallocation hedge accounting
First Claim
1. A computer implemented hedge accounting method for reducing periodic earnings volatility associated with a hedging transaction, the method comprising:
- processing data and instructions on a computer to account for a financial exposure of an associated hedging instrument by designating a portion of the value of the financial exposure as being hedged by the hedging instrument at a start of a first of a plurality of sequential periods, the designated portion representing a price sensitivity of the financial exposure with respect to changes in market value of the underlying instrument;
in each subsequent period of the plurality of sequential periods, processing data on the computer to compute a dynamic re-designation of the portion of the financial exposure being hedged by the hedging instrument to reduce periodic earnings volatility associated with a hedging transaction;
for each of the plurality of sequential periods, processing data and instructions on the computer system to compute a change in the value of the designated exposure in each one of the periods and a change in value of the hedging instrument during corresponding ones of the periods;
comparing the change in the value of the designated exposure in each one of the periods to the change in value of the hedging instrument during corresponding ones of the periods;
accounting for the change in value of the hedging instrument as other comprehensive income in the instance the change in value of the hedging instrument is less than the change in the value of the designated exposure in each one of the compared periods; and
accounting for the change in value of the hedging instrument in excess of the change in value of the hedging instrument as earnings in the instance the change in value of the hedging instrument is greater than the change in the value of the designated exposure in each of the compared periods.
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Accused Products
Abstract
A hedged exposure and an associated hedging instrument can be accounted for to reduce periodic earnings volatility associated with the hedged exposure. The accounting to reduce the earnings volatility includes designating a portion of the value of the financial exposure as being hedged by the hedging instrument. The designated portion is determined based on a price sensitivity of the hedging instrument with respect to changes in market value of an underlying instrument. In each of a number of sequential periods, the portion of the financial exposure is redesignated based on changed price sensitivity of the hedging instrument. Periodic earnings volatility associated with a hedged exposure also can be reduced by dividing (for accounting purposes) the hedging instrument into a first part (also referred to as a designated part) and a second part (also referred to as a residue part). This division is made in a way that ensures that changes in the value of the first part substantially offset changes in value of the financial exposure. The method also includes designating a portion of the first part as a hedge of the financial exposure such that the remainder of the first part offsets the delta of the second part. In each of a plurality of sequential periods, the portion of the first part is redesignated to maintain the relationship between the first part and the second part whereby the remainder of the first part offsets the delta of the second part.
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Citations
16 Claims
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1. A computer implemented hedge accounting method for reducing periodic earnings volatility associated with a hedging transaction, the method comprising:
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processing data and instructions on a computer to account for a financial exposure of an associated hedging instrument by designating a portion of the value of the financial exposure as being hedged by the hedging instrument at a start of a first of a plurality of sequential periods, the designated portion representing a price sensitivity of the financial exposure with respect to changes in market value of the underlying instrument; in each subsequent period of the plurality of sequential periods, processing data on the computer to compute a dynamic re-designation of the portion of the financial exposure being hedged by the hedging instrument to reduce periodic earnings volatility associated with a hedging transaction; for each of the plurality of sequential periods, processing data and instructions on the computer system to compute a change in the value of the designated exposure in each one of the periods and a change in value of the hedging instrument during corresponding ones of the periods; comparing the change in the value of the designated exposure in each one of the periods to the change in value of the hedging instrument during corresponding ones of the periods; accounting for the change in value of the hedging instrument as other comprehensive income in the instance the change in value of the hedging instrument is less than the change in the value of the designated exposure in each one of the compared periods; and accounting for the change in value of the hedging instrument in excess of the change in value of the hedging instrument as earnings in the instance the change in value of the hedging instrument is greater than the change in the value of the designated exposure in each of the compared periods. - View Dependent Claims (2, 3, 4, 5, 6, 7)
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8. A computer implemented method of accounting for a hedged exposure, the method comprising:
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procuring a hedging instrument to hedge a total exposure value of a financial instrument; and on a computer system and prior to each of a series of sequential time periods, processing data and program instructions to cause the computer system to; dynamically calculate a designated portion of the total exposure value based on a current sensitivity of a price of the hedging instrument and the value of the exposure, and account for the hedging instrument as a hedge on the designated portion of the total exposure value; and on the computer system and subsequent to an end of each period of the series of sequential time periods, processing data and program instructions to cause the computer system to; determine a change in the market value of the hedging instrument over a corresponding time period, determine a change in the market value of the designated exposure over the corresponding time period, and account for said change in market value of the hedging instrument offsetting said change in market value of the designated exposure as other than earnings, to reduce periodic earnings volatility associated with accounting for a hedging transaction. - View Dependent Claims (9)
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10. A computer implemented hedge accounting method for reducing periodic earnings volatility associated with a hedging transaction, the method comprising:
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processing data and instructions on a computer to account for a financial exposure of an associated hedging instrument by designating a portion of the value of the financial exposure as being hedged by the hedging instrument at a start of a first of a plurality of sequential periods, the designated portion representing a price sensitivity of the financial exposure with respect to changes in market value of the underlying instrument; in each subsequent period of the plurality of sequential periods, processing data on the computer to compute a dynamic re-designation of the portion of the financial exposure being hedged by the hedging instrument to reduce periodic earnings volatility associated with a hedging transaction; for each of the plurality of sequential periods, processing data and instructions on the computer system to compute a change in the value of the designated exposure in each one of the periods and a change in value of the hedging instrument during corresponding ones of the periods; comparing the change in the value of the designated exposure in each one of the periods to the change in value of the hedging instrument during corresponding ones of the periods; accounting for the change in value of the hedging instrument as other comprehensive income in the instance the change in value of the hedging instrument is less than the change in the value of the designated exposure in each one of the compared periods; and accounting for excess change in value of the hedging instrument as earnings in the instance the change in value of the hedging instrument is greater than the change in the value of the designated exposure in each of the compared periods. - View Dependent Claims (11, 12, 13, 14, 15, 16)
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Specification