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System and method of margining fixed payoff products

  • US 8,086,513 B2
  • Filed: 08/08/2008
  • Issued: 12/27/2011
  • Est. Priority Date: 09/10/2004
  • Status: Active Grant
First Claim
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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 at least one associated fixed payoff value based on at least one outcome of a finite set of outcomes of an event, the method comprising:

  • computing, by a processor of the computer, a portfolio value based on a product value of each of the at least one product;

    determining, by the processor, for each of the at least one product, a set of non-redundant outcomes of the finite set of outcomes, the set of non-redundant outcomes not including the at least one outcome;

    generating, by the processor, for each of the at least one product, a risk value for each of the at least one outcome and each non-redundant outcome of the set of non-redundant outcomes, the risk value comprising one of a gain or loss of the product value associated with the particular outcome;

    adjusting, by the processor, each of the risk values based on a likelihood that the associated outcome will occur;

    determining, by the processor, for each of the at least one outcome and each non-redundant outcome of the set of non-redundant outcomes, an aggregate risk value of each of the adjusted risk values generated for the particular outcome of each of the at least one product;

    determining, by the processor, a maximum aggregate risk value comprising the aggregate risk value representing the largest loss from among the determined aggregate risk values; and

    computing, by the processor, a margin requirement equal to the difference between the portfolio value and the maximum aggregate risk value.

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