Systems and methods for determining an initial margin

Patent metadata

Field	Value
Publication number	US-10922755-B2
Application number	US-202016775970-A
Country	US
Kind code	B2
Filing date	Jan 29, 2020
Priority date	Jun 17, 2013
Publication date	Feb 16, 2021
Grant date	Feb 16, 2021

Abstract

An exemplary system according to the present disclosure comprises a computing device that in operation, causes the system to receive financial product or financial portfolio data, map the financial product to a risk factor, execute a risk factor simulation process involving the risk factor, generate product profit and loss values for the financial product or portfolio profit and loss values for the financial portfolio based on the risk factor simulation process, and determine an initial margin for the financial product. The risk factor simulation process can be a filtered historical simulation process.

First claim

The invention claimed is:

1. A system for efficiently modeling datasets, the system comprising:
at least one computing device comprising memory and at least one processor, the memory storing a margin model and a liquidity risk charge (LRC) model, the processor executing computer-readable instructions that cause the system to:
receive, as input, data defining risk factor data and additional data associated with at least one financial portfolio, the at least one financial portfolio comprising at least one financial product and one or more currencies;
execute the margin model, causing the margin model to execute a risk factor simulation process involving the received risk factor data, said risk factor simulation process comprising a filtered historical simulation process configured to apply a scaling factor to historical pricing data for the risk factor data to resemble current market volatility;
generate, by the margin model, portfolio profit and loss values for the at least one financial portfolio based on output from the risk factor simulation process;
determine an initial margin for the at least one financial portfolio based on the portfolio profit and loss values; and
execute the LRC model, causing the LRC model to determine a portfolio level liquidity risk for the at least one financial portfolio, based on the additional data and portfolio profit and loss data from the margin model, the LRC model executing at least one assessment process to account for price movements and at least one assessment process to account for volatility.

2. The system of claim 1 , wherein the risk factor simulation process comprises:
retrieving the historical pricing data for the risk factor data;
determining statistical properties of the historical pricing data; and
performing de-volatilization and re-volatilization of the historical pricing data to adjust the historical pricing data for said current market volatility.

3. The system of claim 1 , wherein the risk factor simulation process comprises a volatility forecast and the volatility forecast includes a volatility floor, the volatility floor configured to adapt to current market environment conditions.

4. The system of claim 3 , wherein the volatility forecast includes a stress volatility component associated with market stress periods.

5. The system of claim 3 , wherein the volatility forecast includes an anti-pro-cyclicality component (APC) configured to mitigate pro-cyclicality risk.

6. The system of claim 1 , wherein the margin model is configured to generate the portfolio profit and loss values by:
generating one or more risk factor scenarios based on the output of the risk factor simulation process;
generating one or more instrument pricing scenarios based on the one or more risk factor scenarios;
generating one or more profit and loss scenarios at an instrument level, based on the one or more instrument pricing scenarios; and
aggregating the one or more profit and loss scenarios at the instrument level to form one or more profit and loss scenarios at a portfolio level.

7. The system of claim 1 , wherein the determination of the initial margin includes applying a correlation stress component to the initial margin associated with a risk of historical correlation destabilization.

8. The system of claim 1 , wherein the determination of the initial margin includes applying a portfolio diversification benefit to the initial margin, the portfolio diversification benefit including a predetermined benefit limit.

9. The system of claim 1 , wherein the one or more currencies include a plurality of currencies, and the determination of the initial margin includes applying a currency allocation to the initial margin across the plurality of currencies.

10. The system of claim 1 , wherein the LRC model is configured to determine a concentration charge and a bid-ask charge based on one or more equivalent portfolio representations of the at least one portfolio, and to determine the portfolio level liquidity risk based on the combination of the concentration charge and the bid-ask charge.

11. The system of claim 10 , wherein the one or more equivalent portfolio representations include a first representation based on a delta technique and a second representation based on a value-at-risk (VaR) technique.

12. The system of claim 1 , wherein the at least one computing device is configured to generate one or more synthetic datasets, said one or more synthetic datasets configured to model at least one of a benign condition and a regime change condition.

13. The system of claim 1 , wherein the computing device is configured to test at least one of the margin model and the LRC model according to one or more testing categories, said one or more testing categories comprising at least one of fundamental characteristics, backtesting, pro-cyclicality, sensitivity, incremental addition of one or more model components, model comparison with historical simulation, and assumption backtesting.

14. The system of claim 1 , wherein the at least one financial product comprises at least one of a non-linear financial product and a linear financial product, and the at least one computing device is configured to empirically model each of the non-linear financial product and the linear financial product by a same empirical modeling process.

15. A method for efficiently modeling datasets, the method comprising:
providing at least one computing device comprising memory and at least one processor, the memory storing a margin model and a liquidity risk charge (LRC) model;
receiving, as input, via at least one interface of the at least one computing device, data defining risk factor data and additional data associated with at least one financial portfolio, the at least one financial portfolio comprising at least one financial product and one or more currencies;
executing the margin model, via the at least one processor, causing the margin model to execute a risk factor simulation process involving the received risk factor data, said risk factor simulation process comprising a filtered historical simulation process configured to apply a scaling factor to historical pricing data for the risk factor data to resemble current market volatility;
generating, by the margin model, portfolio profit and loss values for the at least one financial portfolio based on output from the risk factor simulation process;
determining, by the at least one processor, an initial margin for the at least one financial portfolio based on the portfolio profit and loss values; and
executing the LRC model, via the at least one processor, causing the LRC model to determine a portfolio level liquidity risk for the at least one financial portfolio, based on the additional data and portfolio profit and loss data from the margin model, the LRC model executing at least one assessment process to account for price movements and at least one assessment process to account for volatility.

16. The method of claim 15 , wherein the risk factor simulation process comprises:
retrieving the historical pricing data for the risk factor data;
determining statistical properties of the historical pricing data; and
performing de-volatilization and re-volatilization of the historical pricing data to adjust the historical pricing data for said current market volatility.

17. The method of claim 15 , wherein the risk factor simulation process comprises a volatility forecast and the volatility forecast includes a volatility floor, the volatility floor configured to adapt to current market environment conditions.

Assignees

• Intercontinental Exchange Holdings Inc

Inventors

• Maruyama Atsushi
• Duinstra Boudewijn
• Schlegel Christian A M
• De Almeida Daniel R
• Cerezetti Fernando V
• Medina Gabriel E S
• Issa Ghais
• Yekutieli Iddo
• Drean Jerome M
• Keppeler Marcus
• Mrabet Rafik
• Pounds Stephen R
• Jiang Wen
• Hu Yanyan
• Yang Yunke

Classifications

• G06Q40/06 Primary

  Asset management; Financial planning or analysis · CPC title