System and method for asymmetric offsets in a risk management system

• US 8,249,973 B2
• Filed: 10/28/2011
• Issued: 08/21/2012
• Est. Priority Date: 09/10/2004
• Status: Active Grant

• Current Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Original Assignee: Chicago Mercantile Exchange, Inc. (CME Group Incorporated)
• Inventors: Glinberg, Dmitriy, Yoo, Tae S., Michaels, Dale A., Gogol, Edward
• Primary Examiner(s): Hammond, III, Thomas M
• Application Number:
  US13/284,336
• Publication Number:
  US 20120047091A1
• Time in Patent Office: 298 Days
• Field of Search: 705 35- 45
• US Class Current: 705/36.R
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• 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
• CPC Class Codes: G06Q 40/08 Insurance

Abstract

A system and method for using asymmetrical offsets for products in a risk management analysis system are disclosed. Conventional systems assign symmetrical offsets for products, that is, if two products have an 80% correlation they each would be assigned an offset of 80% with respect to each other. However, it is desirable to allow for asymmetrical offsets. In the disclosed system and method, when two products have a correlation of 80%, one may be assigned an offset of 75% and the other may be assigned an offset of 80%. There are many reasons to vary the offset between the products. The varying offset may reflect an asymmetry in the risk in one of the products, such as being traded in an illiquid market or in a less desirable venue. The varying offset may correct for an imbalance in spread credits due to special charges from intra spreading.

Claims

1. A computer implemented method of analyzing risk, the method comprising:

receiving, by a computer, data indicative of a first margin requirement for a first product, data indicative of a first risk of loss associated with the first product, data indicative of a second margin requirement for a second product and data indicative of a second risk of loss associated with the second product, the first product having a correlation with the second product, wherein the correlation is independent of any relationship between the first and second risk of loss;

adjusting, in the computer, the first margin requirement for the first product with respect to the second margin requirement for the second product, wherein the adjusting is performed based on the first risk of loss as compared to the second risk of loss irrespective of the correlation between the first and second products such that the adjusted first margin requirement is greater than the adjusted second margin requirement when the first risk of loss is greater than the second risk of loss or the adjusted second margin requirement is greater than the adjusted first margin requirement when the second risk of loss is greater than the first risk of loss; and

computing, by the computer, a margin for a portfolio comprising the first and second products based on the adjusted first and second margin requirements.

2. The computer implemented method of claim 1, wherein the first risk of loss associated with the first product is asymmetric as compared to the second risk of loss associated with the second product.

3. The computer implemented method of claim 1, wherein the first product is traded in a market having less liquidity than a market for the second product.

4. The computer implemented method of claim 1, wherein the second product comprises a futures contract and the first product comprises an option thereon.

5. The computer implemented method of claim 1, wherein the first and second products form a spread.

6. The computer implemented method of claim 1, further comprising:

analyzing a portfolio comprising a plurality of products; and

identifying, for the first product of the plurality of products, the second product from the plurality of products based on the correlation.

7. The computer implemented method of claim 1 wherein the adjusted first margin requirement is greater than the first margin requirement.

8. A computer implemented system for analyzing risk, the system comprising a processor and a memory coupled therewith, the system further comprising:

computer executable code stored in the memory and executed by the processor to receive data indicative of a first margin requirement for a first product, data indicative of a first risk of loss associated with the first product, data indicative of a second margin requirement for a second product and data indicative of a second risk of loss associated with the second product, the first product having a correlation with the second product, wherein the correlation is independent of any relationship between the first and second risk of loss;

computer executable code stored in the memory and executed by the processor to adjust the first margin requirement for the first product with respect to the second margin requirement for the second product, wherein the adjustment is performed based on the first risk of loss as compared to the second risk of loss irrespective of the correlation between the first and second products such that the adjusted first margin requirement is greater than the adjusted second margin requirement when the first risk of loss is greater than the second risk of loss or the adjusted second margin requirement is greater than the adjusted first margin requirement when the second risk of loss is greater than the first risk of loss; and

computer executable code stored in the memory and executed by the processor to compute a margin for a portfolio comprising the first and second products based on the adjusted first and second margin requirements.

9. The system of claim 8, wherein the first risk of loss associated with the first product is asymmetric as compared to the second risk of loss associated with the second product.

10. The system of claim 8, wherein the first product is traded in a market having less liquidity than a market for the second product.

11. The system of claim 8, wherein the second product comprises a futures contract and the first product comprises an option thereon.

12. The system of claim 8, where the first and second products form a spread.

13. The system of claim 8, the computer executable code being further executable by the processor to analyze a portfolio comprising a plurality of products and identify, for the first product of the plurality of products, the second product from the plurality of products based on the correlation.

14. The system of claim 8, wherein the adjusted first margin requirement is not less than the first margin requirement.