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System and method for determining the market risk margin requirements associated with a credit default swap

  • US 8,131,634 B1
  • Filed: 10/27/2011
  • Issued: 03/06/2012
  • Est. Priority Date: 09/15/2009
  • Status: Active Grant
First Claim
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1. A computer-implemented method for determining a margin requirement associated with a plurality of financial instruments within a portfolio, the method comprising:

  • determining a time-series of returns for the plurality of financial instruments within the portfolio;

    calculating residuals and volatilities for the plurality of financial instruments within the portfolio as a function of the determined the time-series of returns;

    applying a student-t copula to a standardized version of the calculated residuals to determine a correlation matrix and degrees-of-freedom utilized to simulate standardized residuals for each of the plurality of financial instruments within the portfolio;

    generating simulated returns as a function of the simulated standardized residuals and the returns;

    generating a spread distribution for the portfolio, wherein the portfolio is repriced as a function of the simulated returns; and

    calculating a margin risk based on a risk percentile associated with the spread distribution.

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