System and Method for Asymmetric Offsets in a Risk Management System

Abstract

A system and method for using asymmetrical offsets for products in a risk management analysis system are disclosed. Conventional systems assign symmetrical offsets for products, that is, if two products have an 80% correlation they each would be assigned an offset of 80% with respect to each other. However, it is desirable to allow for asymmetrical offsets. In the disclosed system and method, when two products have a correlation of 80%, one may be assigned an offset of 75% and the other may be assigned an offset of 80%. There are many reasons to vary the offset between the products. The varying offset may reflect an asymmetry in the risk in one of the products, such as being traded in an illiquid market or in a less desirable venue. The varying offset may correct for an imbalance in spread credits due to special charges from intra spreading.

We claim: 
     
         1 . An apparatus for offsetting margin requirements, the apparatus comprising:
 a processor configured to calculate a correlation for a first tradable instrument and a second tradable instrument based on data associated with the first tradable instrument and the second tradable instrument; and   an offset generator configured to, in response to the correlation for the first tradable instrument and the second tradable instrument, generate at least one asymmetrical offset for the first tradable instrument and the second tradable instrument and in response to the correlation for the first tradable instrument and the second tradable instrument, wherein the at least one asymmetrical offset is applied to a margin requirement.   
     
     
         2 . The apparatus of  claim 1 , wherein the at least one asymmetrical includes a first asymmetrical offset and a second asymmetrical offset, wherein the first asymmetrical offset is greater than the second asymmetrical offset. 
     
     
         3 . The apparatus of  claim 1 , wherein the data associated with the first tradable instrument and the second tradable instrument is real time data. 
     
     
         4 . The apparatus of  claim 1 , wherein the data associated with the first tradable instrument and the second tradable instrument is historical data. 
     
     
         5 . The apparatus of  claim 1 , wherein the first tradable instrument is associated with a first venue and the second tradable instrument is associated with a second venue. 
     
     
         6 . The apparatus of  claim 1 , further comprising:
 a network interface in communication with the processor and configured to receive real time data for the data indicative of the first tradable instrument and the second tradable instrument.   
     
     
         7 . A method for offsetting margin requirements, the method comprising:
 identifying, by a correlation processor, data indicative of a scenario for a portfolio including a first tradable instrument and a second tradable instrument;   calculating, by the correlation processor, a correlation for the first tradable instrument and the second tradable instrument based on data associated with the first tradable instrument and the second tradable instrument; and   generating, by an offset generator, at least one asymmetrical offset for the first tradable instrument and the second tradable instrument in response to the correlation for the first tradable instrument and the second tradable instrument, wherein the at least one asymmetrical offset is applied to a margin requirement.   
     
     
         8 . The method of  claim 7 , further comprising:
 executing a transaction including the first tradable instrument or the second tradable instrument.   
     
     
         9 . The method of  claim 7 , wherein the first tradable instrument is associated with a first venue and the second tradable instrument is associated with a second venue. 
     
     
         10 . The method of  claim 7 , further comprising:
 receiving, at a network interface, data associated with the data indicative of the portfolio.   
     
     
         11 . The method of  claim 7 , wherein the at least one asymmetrical offset includes a first asymmetrical offset and a second asymmetrical offset. 
     
     
         12 . The method of  claim 11 , wherein a difference between the first asymmetrical offset and the second asymmetrical offset reflects an illiquid market. 
     
     
         13 . The method of  claim 11 , wherein a difference between the first asymmetrical offset and the second asymmetrical offset reflects a desirability of a venue associated with the first tradable instrument or the second tradable instrument. 
     
     
         14 . The method of  claim 7 , wherein the first tradable instrument is an option on a combination product. 
     
     
         15 . The method of  claim 14 , wherein the combination product is a butterfly spread or a calendar spread. 
     
     
         16 . The method of  claim 14 , wherein the combination product is a user defined spread comprising legs selected individually by a user. 
     
     
         17 . The method of  claim 7 , wherein the data associated with the first tradable instrument and the second tradable instrument is real time data. 
     
     
         18 . The method of  claim 7 , wherein the data associated with the first tradable instrument and the second tradable instrument is historical data. 
     
     
         19 . An apparatus comprising:
 a processor configured to calculate a correlation for a first tradable instrument and a second tradable instrument based on data associated with the first tradable instrument and the second tradable instrument;   an offset generator configured to, in response to the correlation for the first tradable instrument and the second tradable instrument, generate at least one asymmetrical offset for the first tradable instrument and the second tradable instrument and in response to the correlation for the first tradable instrument and the second tradable instrument, wherein the at least one asymmetrical offset is applied to a margin requirement; and   an exchange device configured to execute a transaction including the first tradable instrument or the second tradable instrument.   
     
     
         20 . The apparatus of  claim 19 , wherein the at least one asymmetrical includes a first asymmetrical offset and a second asymmetrical offset, wherein the first asymmetrical offset is greater than the second asymmetrical offset.