System and method for dynamic path- and state-dependent stochastic control allocation

• US 8,812,397 B2
• Filed: 10/03/2011
• Issued: 08/19/2014
• Est. Priority Date: 02/21/2007
• Status: Active Grant

• Current Assignee: David K.A. Mordecai
• Original Assignee: David K.A. Mordecai
• Inventors: Mordecai, David K. A.
• Primary Examiner(s): AMELUNXEN, BARBARA J
• Application Number:
  US13/251,749
• Publication Number:
  US 20120023038A1
• Time in Patent Office: 1,051 Days
• Field of Search: 705/1, 705/7.33, 705/34, 705/35, 705/36, 705/36.R, 705/37, 705/38, 705/40, 705/26.1, 705/44, 348/169
• US Class Current: 705/44
• CPC Class Codes: G06Q 20/10 specially adapted for electronic funds transfer [EFT] systems; specially adapted for home banking systems
• CPC Class Codes: G06Q 30/0238 at point-of-sale [POS]
• CPC Class Codes: G06Q 40/00 Finance; Insurance; Tax strategies; Processing of corporate or income taxes
• CPC Class Codes: G06Q 40/03 Credit; Loans; Processing thereof
• 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

Abstract

The invention includes a system and process that employs contractual bargaining with agent-based computational methods for the dynamic allocation, optimization, and pricing of contingent rights and obligations between multiple counterparties with overlapping interests. The processes employ a dynamic and endogenous hierarchy or tiering of binding incentive compatible contingent strategies, which may include optimal liquidation policies for matched assets and liabilities based upon stochastic volume/price schedule related to statistically non-stationary supply/demand elasticities and order-flow, as well as variations in market microstructure. The invention includes a dynamic open system with distributed stochastic control of strategic interactions among dynamic optimizing agents across random states, wherein the actions of any one affects the joint costs and benefits for all the agents.

Claims

1. A method, comprising:

a) storing on non-transitory computer readable media, at least one database that is accessible by at least one processor, the at least one database including;

i) counterparty information representing each of a plurality of counterparties;

ii) weighting information representing a respective utility function for determining one or more of subjective probability and decision states associated with each of the plurality of counterparties; and

iii) contractual rule information that includes one or more of conditions, terms and procedures for transacting on behalf of the respective counterparties;

b) accessing, by the at least one processor, a respective first account comprising value associated with inventory pledged by at least one respective counterparty;

c) accessing, by the at least one processor, a respective second account comprising a margin reserve proportional to at least one of;

i) value of each of the counterparties'"'"' respective pro rata contribution to accumulated value associated with an inventory pool, and

ii) value of the each counterparties'"'"' respective pro rata contribution over time;

d) accessing, by the at least one processor, a respective third account usable to receive or allocate capital associated with disposition of at least some of the inventory pool;

e) receiving, by the at least one processor, information associated with at least one of;

i) at least some of the inventory,

ii) the margin reserve, and

iii) the inventory pool;

f) processing, by the at least one processor and based on at least the contractual rule information and the weighting information, the received information to determine an optimized transaction that is among at least two of the plurality of counterparties, and that;

i) mitigates collective risk and optimizes collective gain among the at least two of the counterparties, and

ii) regards at least one of the first account, the second account and the third account; and

g) transacting, by the at least one processor, on behalf of one or more of the at least two counterparties, in accordance with the determined optimized transaction.

2. The method of claim 1, further comprising:

receiving, by the at least one processor, from at least one computing device associated with at least one broker, information representing value of the respective inventory pledged by at least one counterparty.

3. The method of claim 2, wherein the transacting is based at least on a current value of the respective inventory pledged by the at least one counterparty.

4. The method of claim 1, further comprising receiving, by the at least one processor, information representing value of at least some of the inventory pool.

5. The method of claim 4, wherein the transacting is based at least on a current value of the inventory pool.

6. The method of claim 1, wherein the first account is an endowment pledge account, the second account is a spread reserve account, and the third account is a contingent payoff account.

7. The method of claim 1, wherein the value associated with the inventory is one or more of:

a residual right to control the inventory, an estimated value of the inventory, cash flows from residual rights of control, and the inventory itself.

8. The method of claim 1, wherein the contractual rule information is embedded within each of a plurality of bilateral agreements between a plurality of counterparties.

9. The method of claim 1, wherein the transacting includes one or more of:

providing complex insurance;

hedging;

funding;

providing specialty finance;

providing alternative risk transfer;

providing finite/financial reinsurance and tradeable insurance;

providing insurance derivatives;

providing insurance-wrapped defeasance accounting with conduit financing;

providing collateralized credit;

providing debit-versus-credit intermediation;

providing customized risk overlays;

providing one or more of reference indices, baskets and portfolios; and

providing industry loss warranty.

10. The method of claim 9, wherein the reference includes indices, baskets and portfolios, and involve one or more of life, equity, fixed income, credit, commodity, futures contracts, instruments, indices and baskets.

11. The method of claim 1, wherein the margin reserve represents a value of the inventory, relative volatility and other risk associated with the inventory.

12. The method of claim 1, wherein accessing, by the at least one processor, the respective second account includes allocating to the second account in response to a change in the value associated with the inventory.

13. The method of claim 1, wherein the inventory is used to secure one or more of:

bundles of insurance contracts;

master/netting arrangements;

back-to-back financial instruments;

swaps;

options;

repos;

futures/forwards;

letters of credit;

guaranties;

warranties;

receivables;

cash; and

contingent liabilities.

14. The method of claim 1, wherein the inventory pool comprises the total of the inventory associated with all of the plurality of counterparties.

15. The method of claim 1, wherein at least two of the first, second and third accounts are combined in a single account.

16. The method of claim 1, further comprising accounting by the at least one processor for probable outcomes as a function of activities of at least one of the plurality of counterparties.

17. The method of claim 16, wherein the accounting includes calculating an evolution of at least two of the counterparties'"'"' respective states and paths based on adaptive decision-making associated with one or more of the counterparties, individually or collectively.

18. The method of claim 16, wherein the accounting by at least one processor employs at least one Bayesian model.

19. The method of claim 16, wherein the accounting by the at least one processor includes employing at least one of a plurality of Bayesian models encompassed by at least one of a Bayesian hierarchy and a Bayesian network.

20. The method of claim 1, wherein the respective first account comprises value associated with inventory pledged by at least one of a plurality of respective counterparties.

21. The method of claim 1, further comprising storing in the at least one database information associated with at least one of the received information and the optimized transaction for one or more subsequent transactions.

22. The method of claim 1, wherein the step (f) processing and step (g) transacting regards a plurality of optimized transactions.

23. A system, comprising:

at least one processor operatively coupled to one or more processor readable media, wherein the at least one processor is programmed and configured to;

a) access in at least one database;

i) counterparty information representing each of a plurality of counterparties;

ii) weighting information representing a respective utility function for determining one or more of subjective probability and decision states associated with each of the plurality of counterparties; and

iii) contractual rule information that includes one or more of conditions, terms and procedures for transacting on behalf of the respective counterparties;

b) access a respective first account comprising value associated with inventory pledged by at least one respective counterparty;

c) access a respective second account comprising a margin reserve proportional to at least one of;

i) value of each of the counterparties'"'"' respective pro rata contribution to accumulated value associated with an inventory pool, and

ii) value of the each counterparties'"'"' respective pro rata contribution over time;

d) access a respective third account usable to receive or allocate capital associated with disposition of at least some of the inventory pool;

e) receive information associated with at least one of;

i) at least some of the inventory,

ii) the margin reserve, and

iii) the inventory pool;

f) process, based on at least the contractual rule information and the weighting information, the received information to determine an optimized transaction that is among at least two of the plurality of counterparties, and that;

i) mitigates collective risk and optimizes collective gain among the at least two of the counterparties, and

ii) regards at least one of the first account, the second account and the third account; and

;

g) transact, on behalf of one or more of the at least two counterparties, in accordance with the determined optimized transaction.

24. The system of claim 23, wherein the at least one processor is further programmed and configured to receive from at least one computing device associated with at least one broker, information representing value of the respective inventory pledged by at least one counterparty.

25. The system of claim 24, wherein the transacting based at least on a current value of the respective inventory pledged by the at least one counterparty.

26. The system of claim 23, wherein the at least one processor is further programmed and configured to receive electronic information representing value of at least some of the inventory pool.

27. The system of claim 26, wherein the transacting is based at least on a current value of the inventory pool.

28. The system of claim 23, wherein the at least one processor is further programmed and configured to account for probable outcomes as a function of activities of at least one of the plurality of counterparties, wherein the accounting includes employing at least one of a plurality of Bayesian models encompassed by at least one of a Bayesian hierarchy and a Bayesian network.

29. The system of claim 28, wherein the accounting includes calculating evolution of at least two of the counterparties'"'"' respective states and paths based on adaptive decision-making associated with one or more of the counterparties, individually or collectively.

30. The system of claim 23, wherein the respective first account comprises value associated with inventory pledged by at least one of a plurality of respective counterparties.

31. The system of claim 23, wherein information associated with at least one of the received information and the optimized transaction for one or more subsequent transactions is stored in the at least one database for one or more subsequent transactions.

32. The system of claim 23, wherein the step (f) processing and step (g) transacting regards a plurality of optimized transactions.