System and Method for Using Diversification Spreading for Risk Offset

Abstract

A computer-implemented method for analyzing a risk offset associated with a portfolio including a plurality of products traded on an exchange is disclosed. The method includes comparing a first market response of a first product in the portfolio with a second market response of a second product in the portfolio where the first and second market responses result from a change in market data, calculating an offsetting effect between the first market response and the second market response where the first and second market responses are substantially different responses to the same change in the market data, determining a diversification spread based on the offsetting effect derived between the first product and the second product, calculating a diversification spread credit based on the determined diversification spread, and adjusting a margin requirement for the portfolio based on the diversification spread credit.

We claim: 
     
         1 . A method comprising:
 calculating, by a processor, a degree to which each of a plurality of products is correlated with others of the plurality of products; and   calculating, by the processor, a credit based on the degree to which each of the plurality of products is correlated with the others of the plurality of products.   
     
     
         2 . The method of  claim 1 , further comprising:
 calculating, by the processor, an initial margin requirement based on the credit.   
     
     
         3 . The method of  claim 1 , further comprising:
 increasing a margin requirement when the degree to which each of the plurality of products is correlated with the others of the plurality of products becomes lower; and   decreasing the margin requirement when the degree to which each of the plurality of products is correlated with the others of the plurality of products becomes higher.   
     
     
         4 . The method of  claim 1 , further comprising:
 indexing the plurality of products according to diversification groups.   
     
     
         5 . The method of  claim 4 , further comprising:
 assigning a high degree of correlation to products within a diversification group.   
     
     
         6 . The method of  claim 4 , wherein determining the degree to which each of the plurality of products is correlated with the others of the plurality of products is based on an effect of a set of market conditions thereon as compared to the effect of the set of the market conditions on the others of the plurality of products. 
     
     
         7 . The computer implemented method of  claim 6 , wherein the degree to which a particular product of the plurality of products is correlated to an other product of the plurality of products is determined to be low when the set of market conditions is determined to have a different effect on the particular product as compared to the other product. 
     
     
         8 . The computer implemented method of  claim 1 , wherein the credit is computed to be higher when the degree of correlation among the plurality of products is determined to be lower. 
     
     
         9 . An apparatus comprising:
 a memory configured to store classification groups for products; and   a controller configured to access the classification groups for a plurality of products and calculate a degree to which each of the plurality of products is correlated with the others of the plurality of products based on the classification groups, wherein a credit based on the degree to which each of a plurality of products is correlated with the others of the plurality of products is applied to a portfolio including the plurality of products.   
     
     
         10 . The apparatus of  claim 9 , wherein the controller is configured to calculate an initial margin requirement based on the credit. 
     
     
         11 . The apparatus of  claim 9 , wherein one of the classification groups is energy. 
     
     
         12 . The apparatus of  claim 9 , wherein the controller is configured to increase a margin requirement when the degree to which each of the plurality of products is correlated with the others of the plurality of products lowers and decrease margin requirement when the degree to which each of a plurality of products is correlated with the others of the plurality of products raises. 
     
     
         13 . A computer readable medium containing instructions that, when executed by a computer, are configured to:
 calculate, by a processor, a degree to which each of a plurality of products is correlated with other products of the plurality of products; and   calculate, by the processor, a credit based on the degree to which each of the plurality of products is correlated with the other products of the plurality of products.   
     
     
         14 . The computer readable medium of  claim 13 , the instructions further configured to:
 calculate, by the processor, an initial margin requirement based on the credit.   
     
     
         15 . The computer readable medium of  claim 13 , the instructions further configured to:
 increase a margin requirement when the degree to which each of the plurality of products is correlated with the other products of the plurality of products becomes lower; and   decrease margin requirement when the degree to which each of the plurality of products is correlated with the other products of the plurality of products becomes higher.   
     
     
         16 . The computer readable medium of  claim 13 , the instructions further configured to:
 store the plurality of products according to diversification groups.   
     
     
         17 . The computer readable medium of  claim 16 , the instructions further configured to:
 assign a high degree of correlation to products within a diversification group.   
     
     
         18 . The computer readable medium of  claim 17 , wherein the degree to which each of the plurality of products is correlated with the other products of the plurality of products based on an effect of a set of market conditions thereon as compared to the effect of the set of the market conditions on the other products of the plurality of products. 
     
     
         19 . The computer readable medium of  claim 18 , wherein the degree to which a particular product of the plurality of products is correlated to an other product of the plurality of products is determined to be low when the set of market conditions is determined to have a different effect on the particular product as compared to the other product. 
     
     
         20 . The computer readable medium of  claim 13 , wherein the credit is computed to be higher when the degree of correlation among the plurality of products is determined to be lower.