Data Flow Management System and Method for Equity/Interest Rate Risk Mitigation

Abstract

A system for managing data flows includes a network server including a central processing unit, a communication port, at least one random access memory, a read-only memory and one or more databases or data storage devices. Computer program code is stored on a memory. The system includes an engine operable to determine data specifying a risk mitigation portfolio including a hybrid derivative to embed multiple exposures simultaneously and which provides a formula that is a joint function of an index and a rate. A central serial bus operably interconnects devices via a bi-directional connection.

What is claimed is: 
     
         1 . A computerized system for managing and monitoring data flow, comprising:
 a risk assessment module configured to assess data; and   a risk mitigation engine configured to:
 calculate a base valuation estimate corresponding to the risks associated with issuance of an insurance instrument and an estimate of sensitivities of the base valuation estimate to changes in capital markets data; 
 formulate, based on the base valuation estimate and the estimate of the sensitivities of the base valuation estimate, data specifying a risk mitigation portfolio that includes at least a first derivative that is a hybrid derivative selected to embed equity and interest rate exposure simultaneously and which exhibits a payoff formula that is a joint function of the equity index and the interest rate; 
 transmit instructions which cause trades to be executed on behalf of the issuer based on the data specifying the risk mitigation portfolio that position the sensitivities of a valuation estimate of the risk mitigation portfolio within a desired range of the estimate of the sensitivities of the base valuation estimate; and 
 continuously receive updated capital markets data and generate an updated risk mitigation portfolio to position the sensitivities of the valuation estimate of the risk mitigation portfolio with the desired range of the estimate of the sensitivities of the base valuation estimate by repeating the formulating and transmitting steps. 
   
     
     
         2 . The system of  claim 1 , wherein the risk mitigation engine is further configured to:
 responsive to the receipt of the updated capital markets data, determine whether exposure values corresponding to the risk mitigation portfolio are within a desired range of the estimate of the sensitivities of the base valuation estimate by continuously reviewing net exposures corresponding to the updated capital markets data; and   wherein generating the updated risk portfolio by repeating the formulating and transmitting steps is performed responsive to a determination that the exposure values corresponding to the existing risk mitigation portfolio are not within the desired range of the estimate of the sensitivities of the base valuation estimate.   
     
     
         3 . The system of  claim 1  wherein said computerized system further includes a reporting module configured to generate information reports for said insurance instrument. 
     
     
         4 . The system of  claim 1 , wherein the risk mitigation engine is further configured to formulate data specifying a risk mitigation instrument that is based on at least a first derivative which exhibits a payoff formula selected to provide greater risk mitigation when both the equity index decreases and the interest rate decreases relative to instances when only the equity index decreases and not the interest rate. 
     
     
         5 . The system of  claim 4  wherein the payoff formula is created using a put option instrument having a payoff amount based on a discount from a future date based on a reference interest rate. 
     
     
         6 . The system of  claim 1 , wherein the risk mitigation engine is further configured to formulate data specifying a risk mitigation instrument that is based on at least a first derivative which exhibits a payoff formula selected to provide lower risk mitigation costs when both the equity index decreases and the interest rate decreases relative to instances when only the equity index decreases. 
     
     
         7 . The system of  claim 1  wherein the risk mitigation engine is further configured to perform risk mitigation transactions including active risk mitigation, wherein the active risk mitigation comprises:
 matching at least one of the delta, gamma, vega, theta or rho to a portfolio of options contracts. 
 
     
     
         8 . The system of  claim 1 , wherein the risk mitigation engine is configured to formulate data specifying a risk mitigation instrument that is based on at least a first derivative which exhibits a payoff formula that is a function of:
 (a) any single or packaged combination of individual equities, equity indices, exchange-traded funds, equity futures, and/or equity forwards, and   (b) any single interest rate, combination of interest rates, or observation(s) of joint behavior of one or more interest rates, or one or more indices linked to interest rates, or any single fixed income instrument or combination of fixed income instruments, or any single fixed income index or combination of fixed income indices, or any combination of any two or more of items listed in this paragraph (b).   
     
     
         9 . A computerized method for managing and monitoring data flow, comprising:
 identifying, in a risk mitigation system having at least one central processing computer and at least one data storage device, at least one insurance instrument having benefits;   calculating in the at least one central processing computer at least one risk statistic based on characteristics of the at least one insurance instrument;   storing the at least one risk statistic in the at least one data storage device;   calculating, by a risk mitigation engine, a base valuation estimate corresponding to the at least one risk statistic associated with said issuance of said insurance instrument and an estimate of sensitivities of the base valuation estimate to changes in capital markets data;   formulating, by the risk mitigation engine based on the base valuation estimate and the estimate of the sensitivities of the base valuation estimate, the data specifying the risk mitigation portfolio for directly mitigating the risks associated with the at least one insurance instrument, wherein the risk mitigation portfolio includes the instrument that is at least in part based on the at least one hybrid derivative, and wherein the hybrid derivative exhibits a payoff formula that is a function of two or more asset classes, the hybrid derivative selected to embed equity and interest rate exposure simultaneously;   transmitting, by the risk mitigation engine, instructions which cause trades to be executed on behalf of the insurance provider based on the data specifying the risk mitigation portfolio that position the sensitivities of a valuation estimate of the risk mitigation portfolio within a desired range of the estimate of the sensitivities of the base valuation estimate; and   continuously receiving, by the risk mitigation engine, updated capital markets data and generating an updated risk mitigation portfolio to position the sensitivities of the valuation estimate of the risk mitigation portfolio with the desired range of the estimate of the sensitivities of the base valuation estimate by repeating the formulating and transmitting steps.   
     
     
         10 . The computerized method of  claim 9 , further comprising:
 responsive to the receipt of the updated capital markets data, determining, by the risk mitigation engine, whether exposure values corresponding to the risk mitigation portfolio are within a desired range of the estimate of the sensitivities of the base valuation estimate by continuously reviewing net exposures corresponding to the updated capital markets data; and   wherein generating the updated risk portfolio by repeating the formulating and transmitting steps is performed responsive to a determination that the exposure values corresponding to the existing risk mitigation portfolio are not within the desired range of the estimate of the sensitivities of the base valuation estimate.   
     
     
         11 . The computerized method of  claim 9 , further comprising formulating data specifying a risk mitigation instrument that is based on at least a first derivative which exhibits a payoff formula selected to provide greater risk mitigation when both the equity index decreases and the interest rate decreases relative to instances when only the equity index decreases and not the interest rate. 
     
     
         12 . The computerized method of  claim 11 , wherein the payoff formula is generated using a put option instrument having a payoff amount based on a discount from a future date based on a reference interest rate. 
     
     
         13 . The computerized method of  claim 9 , further comprising formulating data specifying a risk mitigation instrument that is based on at least a first derivative which exhibits a payoff formula selected to provide lower risk mitigation costs when both the equity index decreases and the interest rate decreases relative to instances when only the equity index decreases. 
     
     
         14 . The computerized method of  claim 9 , further comprising performing, by the risk mitigation engine, risk mitigation transactions including active risk mitigation, wherein the active risk mitigation comprises:
 matching at least one of the delta, gamma, vega, theta or rho to a portfolio of options contracts.   
     
     
         15 . The computerized method of  claim 9 , further comprising: using the data for mitigating the risks associated with the at least one insurance instrument to cause the purchasing of option contracts based on the data. 
     
     
         16 . The computerized method of  claim 9 , further comprising generating, by a reporting module, reports of information associated with said insurance instrument. 
     
     
         17 . The computerized method of  claim 9 , wherein the payoff formula is a function of:
 (a) any single or packaged combination of individual equities, equity indices, exchange-traded funds, equity futures, and/or equity forwards, and   (b) any single interest rate, combination of interest rates, or observation(s) of joint behavior of one or more interest rates, or one or more indices linked to interest rates, or any single fixed income instrument or combination of fixed income instruments, or any single fixed income index or combination of fixed income indices, or any combination of any two or more of items listed in this paragraph (b).   
     
     
         18 . A computer system for managing and monitoring data flow, comprising:
 a data entry device configured to receive information related to a variable annuity contract;   a communications device in communication with the data entry device;   a data storage device in communication with the data entry device via the communications device storing the received information associated with the variable annuity contract;   a processor in communication with said data storage device via the communications device, said computing system including a risk assessment module for assessing risks associated with the issuance of said variable annuity contract, said risks including behavior risks and market risks; and   a risk mitigation engine in communications with the processing device via communications device for directly mitigating the risks associated with said issuance of said variable annuity contract by utilizing hybrid derivatives, wherein the risk mitigation engine is configured to:
 calculate a base valuation estimate corresponding to the risks associated with said issuance of said insurance instrument and an estimate of sensitivities of the base valuation estimate to changes in capital markets data; 
 formulate, based on the base valuation estimate and the estimate of the sensitivities of the base valuation estimate, the data specifying the risk mitigation portfolio that includes equity and interest rate hybrid derivatives which exhibit the payoff formula that is a joint function of the equity index and the interest rate wherein the payoff formula is selected to provide greater risk mitigation protection when both the equity index decreases and the interest rate decreases relative to instances when only the equity index decreases; 
 transmit instructions which cause purchase of one or more options contracts on behalf of the issuer based on the data specifying the risk mitigation portfolio that position the sensitivities of a valuation estimate of the risk mitigation portfolio within a desired range of the estimate of the sensitivities of the base valuation estimate; and 
 continuously receive updated capital markets data and generate an updated risk mitigation portfolio to position the sensitivities of the valuation estimate of the risk mitigation portfolio with the desired range of the estimate of the sensitivities of the base valuation estimate by repeating the formulating and transmitting steps. 
   
     
     
         19 . The system of  claim 18 , wherein the variable annuity contract includes one or more of a guaranteed minimum death benefit, a guaranteed minimum income benefit, a guaranteed minimum accumulation benefit, and a guaranteed minimum withdrawal benefit. 
     
     
         20 . The system of  claim 18 , wherein the payoff formula is created using a put option instrument having a payoff amount based on a discount from a future date based on a reference interest rate.