System and method for hybrid spreading for risk management

Abstract

A risk management system and method is disclosed utilizing a flexible and configurable set of spreading techniques which may be incorporated into existing risk management software to enhance functionality, flexibility and accuracy. Multiple different types of spreading are combined allowing for a more accurate risk assessment. For example, a subset of derivative products held by a futures trader are first analyzed using a scanning based spreading methodology. Typically, futures products in the same product class (e.g. equity or agriculture futures) would be analyzed together thereby. Then an average delta would be calculated for that subset. Using that delta, that subset would then be analyzed in relation to the remaining derivative products (not in the subset) using a delta based spreading methodology. The delta for the subset could be computed in many ways including scaling the deltas for each product, tying the delta to a fixed time period or other methods.

We claim: 
     
         1 . A computer implemented method of managing risk associated with a portfolio, the portfolio comprising a plurality of positions, each of the plurality of positions being associated with at least one product traded on an exchange, the method comprising:
 forming, in a computer, a scanning-based inter-commodity spread based on at least one target position and at least one non-target position of the plurality of positions;   identifying, by the computer, remaining delta of each of the at least one target position and each of the at least one non-target position subsequent to the forming; and   accounting, by the computer, for a difference between the at least one target position and the at least one non-target position.   
     
     
         2 . The computer implemented method of  claim 1  wherein the accounting further comprises scaling, in the computer, the remaining delta of each of the at least one non-target position and aggregating, in the computer, the scaled remaining delta of each of the at least one non-target position with each of the remaining delta of the at least one target position 
     
     
         3 . The computer implemented method of  claim 2  wherein the scaling further comprises scaling the remaining delta of each of the at least one non-target positions based on a relative size of each associated at least one product. 
     
     
         4 . The computer implemented method of  claim 2  further comprising forming subsequent to the aggregating, in a computer, a delta-based intercommodity spread based on the at least one target position. 
     
     
         5 . The computer implemented method of  claim 1  wherein the forming further comprises forming the scanning based spread based on the at least one target position, the at least one non-target position and another non-target position not included in the plurality of positions. 
     
     
         6 . A computer implemented method of managing risk associated with a portfolio, the portfolio comprising a plurality of positions, each of the plurality of positions being associated with at least one product traded on an exchange, the method comprising:
 forming, by a processor, a scanning-based inter-commodity spread based on at least two positions of the plurality of positions of the portfolio and at least one position not in the portfolio.   
     
     
         7 . The computer implemented method of  claim 6  wherein one or more of the at least two positions comprises at least one target position and at least one non-target position, the method further comprising:
 identifying, by the computer, remaining delta of each of the at least one target position and each of the at least one non-target position subsequent to the forming; and 
 accounting, by the computer, for a difference between the at least one target position and the at least one non-target position. 
 
     
     
         8 . The computer implemented method of  claim 7  wherein the accounting further comprises:
 scaling, in the computer, the remaining delta of each of the at least one non-target position; and 
 aggregating, in the computer, the scaled remaining delta of each of the at least one non-target position with each of the remaining delta of the at least one target position. 
 
     
     
         9 . The computer implemented method of  claim 8  wherein the scaling further comprises scaling the remaining delta of each of the at least one non-target positions based on a relative size of each associated at least one product. 
     
     
         10 . The computer implemented method of  claim 8  further comprising forming, in the computer subsequent to the aggregating, a delta-based intercommodity spread based on the at least one target position. 
     
     
         11 . The computer implemented method of  claim 6  wherein the at least two positions comprises at least a target position and a first non-target position and the at least one position not in the portfolio comprises a second non-target position. 
     
     
         12 . A system for managing risk associated with a portfolio, the portfolio comprising a plurality of positions, each of the plurality of positions being associated with at least one product traded on an exchange, the system comprising:
 a computer programmed to form a scanning-based inter-commodity spread based on at least one target position and at least one non-target position of the plurality of positions, identify, subsequent to the formation, remaining delta of each of the at least one target position and each of the at least one non-target position, and account for a difference between the at least one target position and the at least one non-target position.   
     
     
         13 . The system of  claim 12  wherein the computer, in order to account for the difference between the at least one target position and the at least one non-target position, is further programmed to scale the remaining delta of each of the at least one non-target position, and aggregate the scaled remaining delta of each of the at least one non-target position with each of the remaining delta of the at least one target position. 
     
     
         14 . The system of  claim 13  wherein the computer is further programmed to scale the remaining delta of each of the at least one non-target positions based on a relative size of each associated at least one product. 
     
     
         15 . The system of  claim 13  wherein the computer is further programmed to form, subsequent to the aggregation, a delta-based intercommodity spread based on the at least one target position. 
     
     
         16 . The system of  claim 8  wherein the computer is further programmed to form the scanning based spread based on the at least one target position, the at least one non-target position and another non-target position not included in the plurality of positions. 
     
     
         17 . A system managing risk associated with a portfolio, the portfolio comprising a plurality of positions, each of the plurality of positions being associated with at least one product traded on an exchange, the system comprising a computer programmed to form a scanning based inter-commodity spread based on at least two positions of the plurality of positions of the portfolio and at least one position not in the portfolio. 
     
     
         18 . The system of  claim 17  wherein one or more of the at least two positions comprises at least one target position and at least one non-target position, the computer being further programmed to identify remaining delta of each of the at least one target position and each of the at least one non-target position subsequent to the formation, and account for a difference between the at least one target position and the at least one non-target position. 
     
     
         19 . The system of  claim 18  wherein the computer is further programmed to scale the remaining delta of each of the at least one non-target position, and aggregate the scaled remaining delta of each of the at least one non-target position with each of the remaining delta of the at least one target position. 
     
     
         20 . The system of  claim 19  wherein the computer is further programmed to scale the remaining delta of each of the at least one non-target positions based on a relative size of each associated at least one product. 
     
     
         21 . The system of  claim 19  wherein the computer is further programmed to form, subsequent to the aggregation, a delta-based intercommodity spread based on the at least one target position. 
     
     
         22 . The system of  claim 17  wherein the at least two positions comprises at least a target position and a first non-target position and the at least one position not in the portfolio comprises a second non-target position.