System and Method for Efficiently Using Collateral for Risk Offset

Abstract

A system and method for analyzing correlation between the assets given by the trader for collateral and that trader's open positions is disclosed. Thus, if the collateral is correlated to the trader's open positions, then some offset can be given. If there is no correlation than the collateral is valued in the conventional way. For example, if a trader provides t-bills as collateral for an account that has open positions (e.g. short futures) in T-bills, than that trader's account can be credited with some offset since the value of T-bills and T-bill futures are highly correlated.

We claim: 
     
         1 . A method comprising:
 receiving, at a computer processor, a margin value;   identifying, using the computer processor, a collateral satisfying at least a portion of the margin value;   analyzing, using the computer processor, a degree of correlation between the collateral and at least one open position; and   computing, using the computer processor, an adjustment to the margin value based on the degree of correlation between the collateral and the at least one open position.   
     
     
         2 . The method of  claim 1 , wherein the adjustment to the margin value is a reduction of the margin value that increases as the degree of correlation increases. 
     
     
         3 . The method of  claim 1 , further comprising: computing the adjustment to the margin value from an interest rate associated with the collateral and an interest rate associated with the at least one open position. 
     
     
         4 . The method of  claim 1 , wherein the collateral includes a first spread and the at least one open position includes a second spread. 
     
     
         5 . The method of  claim 4 , further comprising: comparing, using the computer processor, a leg of the first spread and a leg of the second spread. 
     
     
         6 . The method of  claim 1 , wherein the margin value is inversely related to the degree of correlation. 
     
     
         7 . The method of  claim 1 , further comprising: calculating, using the computer processor, a haircut for the collateral, wherein the computer processor uses the haircut for computing the adjustment to the margin value. 
     
     
         8 . The method of  claim 1 , further comprising:
 determining, using the computer processor, a product classification for the collateral, wherein the product classification is associated with a futures style valuation or a premium style valuation, and wherein computing the adjustment to the margin value depends on the product classification.   
     
     
         9 . The method of  claim 1 , further comprising:
 setting a collateral flag in an output file according to the adjustment to the margin value based on the degree of correlation between the collateral and the at least one open position.   
     
     
         10 . A margin calculator, the calculator comprising:
 a memory storing a listing of a portfolio of a plurality of products traded on an exchange and storing data indicative of a margin associated with the portfolio of the plurality of products; and   a computer processor configured to compute an adjustment to the margin based on a relationship between a collateral and one or more of the plurality of products, wherein the adjustment to the margin is a reduction of the margin that increases as a degree of correlation between the collateral and the one or more of the plurality of products increases.   
     
     
         11 . The margin calculator of  claim 10 , wherein the computer processor is configured to analyze at least one factor indicative of the relationship between the collateral and the one or more of the plurality of products. 
     
     
         12 . The margin calculator of  claim 11 , wherein the at least one factor is computed from an interest rate of the collateral and an interest rate associated with the one or more of the plurality of products. 
     
     
         13 . The margin calculator of  claim 11 , wherein the collateral includes a first spread and the one or more of the plurality of products includes a second spread. 
     
     
         14 . The margin calculator of  claim 11 , wherein the computer processor is configured to compute the at least one factor from a leg of the first spread and a leg of the second spread. 
     
     
         15 . The margin calculator of  claim 11 , wherein the at least one factor indicates perfect correlation between the collateral and a product of the plurality of products. 
     
     
         16 . The margin calculator of  claim 10 , wherein the computer processor is configured to calculate a haircut for the collateral, wherein the haircut is used in computing the adjustment to the margin. 
     
     
         17 . The margin calculator of  claim 10 , wherein the computer processor is configured to determine a product classification for the collateral, wherein the product classification is associated with a futures style valuation or a premium style valuation, and wherein the adjustment to the margin depends on the product classification. 
     
     
         18 . The margin calculator of  claim 10 , wherein the computer processor is configured to set a collateral flag in an output file according to the adjustment to the margin based on the degree of correlation between the collateral and the one or more of the plurality of products. 
     
     
         19 . A non-transitory computer readable medium storing instructions, which when executed by a computer processor, perform a method comprising:
 calculating, using a processor, a margin required for a plurality of products;   receiving data indicative of a collateral as at least a partial satisfaction of the margin required for the plurality of products;   analyzing, using the computer processor, a relationship between the collateral and one or more of the plurality of products to establish a degree of correlation; and   computing, using the computer processor, an adjustment to the margin based on the relationship between the collateral and one or more of the plurality of products, wherein an amount of the margin is inversely dependent on a degree of correlation between the collateral and one or more of the plurality of products.   
     
     
         20 . The non-transitory computer readable medium of  claim 19 , the method further comprising: calculating a haircut percentage for the collateral, wherein the computer processor uses the haircut for calculating the margin.