System and method for asymmetric offsets in a risk management system
First Claim
1. A computer implemented method of analyzing risk, the method comprising:
- adjusting, by a computer, a first margin requirement for a first product with respect to a second margin requirement for a second product having a correlation with the first product, as a function of a risk of loss associated with the first product as compared to the second product irrespective of the correlation;
adjusting, by the computer, a third margin requirement for a third product with respect to a fourth margin requirement for a fourth product having a correlation with the third product, wherein the adjustment to the third margin requirement is the same as the adjustment to the fourth margin requirement; and
computing, by the computer, a margin for a portfolio comprising the first, second, third and fourth products as a sum of the first, second, third and fourth margin requirements.
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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.
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Citations
20 Claims
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1. A computer implemented method of analyzing risk, the method comprising:
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adjusting, by a computer, a first margin requirement for a first product with respect to a second margin requirement for a second product having a correlation with the first product, as a function of a risk of loss associated with the first product as compared to the second product irrespective of the correlation; adjusting, by the computer, a third margin requirement for a third product with respect to a fourth margin requirement for a fourth product having a correlation with the third product, wherein the adjustment to the third margin requirement is the same as the adjustment to the fourth margin requirement; and computing, by the computer, a margin for a portfolio comprising the first, second, third and fourth products as a sum of the first, second, third and fourth margin requirements. - View Dependent Claims (2, 3, 4)
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5. A computer implemented method of analyzing risk, the method comprising:
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receiving, at a computer, data indicative of a first margin requirement for a first tradable instrument, data indicative of a first risk of loss associated with the first tradable instrument, data indicative of a second margin requirement for a second tradable instrument and data indicative of a second risk of loss associated with the second tradable instrument; adjusting, in the computer, a first margin requirement for a first tradable instrument with respect to a second margin requirement for a second tradable instrument having a correlation with the first tradable instrument, as a function of a risk of loss associated with the first tradable instrument as compared to the second tradable instrument irrespective of the correlation; adjusting, in a computer, a third margin requirement for a third tradable instrument with respect to a fourth margin requirement for a fourth tradable instrument having a correlation with the third tradable instrument, wherein the adjustment to the third margin requirement approximates the adjustment to the fourth margin requirement; and computing, by the computer, a margin for a portfolio comprising the first, second, third and fourth tradable instruments as a sum of the first, second, third and fourth margin requirements. - View Dependent Claims (6, 7, 8, 9)
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10. A method comprising:
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adjusting, at a computer processor, a first margin requirement for a first tradable instrument with respect to a second margin requirement for a second tradable instrument having a correlation with the first tradable instrument, as a function of a risk of loss associated with the first tradable instrument as compared to a risk of loss associated with the second tradable instrument; adjusting, at the computer processor, a third margin requirement for a third tradable instrument with respect to a fourth margin requirement for a fourth tradable instrument having a correlation with the third tradable instrument; and computing, by the computer processor, a margin for a portfolio comprising the first, second, third and fourth tradable instruments as a sum of the first, second, third and fourth margin requirements. - View Dependent Claims (11, 12, 13, 14, 15, 16, 17, 18, 19, 20)
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Specification