System and method of margining fixed payoff products
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United States of America Patent
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Sep 17, 2013
Grant Date -
Mar 28, 2013
app pub date -
Nov 16, 2012
filing date -
Sep 10, 2004
priority date (Note) -
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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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