System and method of margining fixed payoff products
First Claim
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:
- determining, by a computer system comprising at least a computer processor, for each of the at least one product, an associated set of non-redundant outcomes of the finite set of outcome including the at least one outcome upon which the at least one associated fixed payoff value is based;
generating, by the computer system, for each of the at least one product, a risk value for each outcome of the associated set of non-redundant outcomes, the risk value comprising one of a no change, gain or loss of a product value of the at least one product associated with the particular outcome;
adjusting, by the computer system for each of the at least one product, each of the risk values based on a likelihood that the associated outcome will occur;
determining, by the computer system, for each non-redundant outcome of the associated 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 computer system, 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 computer system, a margin requirement as a difference between a value of the portfolio and the maximum aggregate risk value.
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Accused Products
Abstract
A system and method is disclosed for determining performance bonds for fixed payoff products, i.e. contracts which payoff a fixed amount based on the outcome of an underlying event regardless of the value thereof. The worst outcome of the overall portfolio, which may contain more multiple instruments, is calculated, allowing the portfolio to have both long and short positions on the same underlying event and offsets among instruments within the portfolio. A universe of outcomes is constructed including single events with single outcomes, and the probability thereof, and single events with multiple outcomes, each with a probability thereof. Each outcome has an associated price and probability. Low probability events will have low values, resulting in a lower margin requirement. The margin requirement is then the amount of the maximum loss that the portfolio can sustain for any possible outcome of the underlying event, adjusted for the probability thereof.
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Citations
20 Claims
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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:
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determining, by a computer system comprising at least a computer processor, for each of the at least one product, an associated set of non-redundant outcomes of the finite set of outcome including the at least one outcome upon which the at least one associated fixed payoff value is based; generating, by the computer system, for each of the at least one product, a risk value for each outcome of the associated set of non-redundant outcomes, the risk value comprising one of a no change, gain or loss of a product value of the at least one product associated with the particular outcome; adjusting, by the computer system for each of the at least one product, each of the risk values based on a likelihood that the associated outcome will occur; determining, by the computer system, for each non-redundant outcome of the associated 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 computer system, 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 computer system, a margin requirement as a difference between a value of the portfolio and the maximum aggregate risk value. - View Dependent Claims (2, 3, 4, 5, 6, 7, 8, 9, 10)
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11. A system for 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 system comprising a processor and a memory coupled therewith, the system further comprising:
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a possible outcome generator computer software program stored in the memory and executable by the processor to determine, for each of the at least one product, an associated set of non-redundant outcomes of the finite set of outcome including the at least one outcome upon which the at least one associated fixed payoff value is based; a risk array value generator computer software program stored in the memory and coupled with the possible outcome generator computer software program and executable by the processor to generate, for each of the at least one product, a risk value for each outcome of the associated set of non-redundant outcomes, the risk value comprising one of a no change, gain or loss of a product value of the at least one product associated with the particular outcome; a probability generator computer software program stored in the memory and coupled with the possible outcome generator computer software program and executable by the processor to adjust, for each of the at least one product, each of the risk values based on a likelihood that the associated outcome will occur; a risk processor computer software program stored in the memory coupled with the probability generator computer software program and executable by the processor to determine, for each non-redundant outcome of the associated 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; the risk processor computer software program being further executable by the processor to determine a maximum aggregate risk value comprising the aggregate risk value representing the largest loss from among the determined aggregate risk values and compute a margin requirement as a difference between a value of the portfolio and the maximum aggregate risk value. - View Dependent Claims (12, 13, 14, 15, 16, 17, 18, 19, 20)
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Specification