Source: http://www.google.com/patents/US20080215480?ie=ISO-8859-1
Timestamp: 2014-03-10 13:16:16
Document Index: 12584848

Matched Legal Cases: ['arty 302', 'arty 302', 'arty 302', 'arty 302', 'arty 302', 'arty 302', 'arty 302', 'arty 302', 'arty 302', 'arty 302', 'arty 302', 'arty 302', 'arty 302', 'arty 302']

Patent US20080215480 - System and method for dynamic path- and state-dependent stochastic control ... - Google PatentsSearch Images Maps Play YouTube News Gmail Drive More »Sign inAdvanced Patent SearchPatentsThe invention includes a system and process that employs contractual bargaining with agent-based computational methods for the dynamic allocation, optimization, and pricing of contingent rights and obligations between multiple counterparties with overlapping interests. The processes employ a dynamic...http://www.google.com/patents/US20080215480?utm_source=gb-gplus-sharePatent US20080215480 - System and method for dynamic path- and state-dependent stochastic control allocationAdvanced Patent SearchPublication numberUS20080215480 A1Publication typeApplicationApplication numberUS 12/035,347Publication dateSep 4, 2008Filing dateFeb 21, 2008Priority dateFeb 21, 2007Also published asUS7925581, US8032451, US20110137792, US20120023038, WO2008103469A1Publication number035347, 12035347, US 2008/0215480 A1, US 2008/215480 A1, US 20080215480 A1, US 20080215480A1, US 2008215480 A1, US 2008215480A1, US-A1-20080215480, US-A1-2008215480, US2008/0215480A1, US2008/215480A1, US20080215480 A1, US20080215480A1, US2008215480 A1, US2008215480A1InventorsDavid K. A. MordecaiOriginal AssigneeMordecai David K AExport CitationBiBTeX, EndNote, RefManReferenced by (10), Classifications (14) External Links: USPTO, USPTO Assignment, EspacenetSystem and method for dynamic path- and state-dependent stochastic control allocationUS 20080215480 A1Abstract The invention includes a system and process that employs contractual bargaining with agent-based computational methods for the dynamic allocation, optimization, and pricing of contingent rights and obligations between multiple counterparties with overlapping interests. The processes employ a dynamic and endogenous hierarchy or tiering of binding incentive compatible contingent strategies, which may include optimal liquidation policies for matched assets and liabilities based upon stochastic volume/price schedule related to statistically non-stationary supply/demand elasticities and order-flow, as well as variations in market microstructure. The invention includes a dynamic open system with distributed stochastic control of strategic interactions among dynamic optimizing agents across random states, wherein the actions of any one affects the joint costs and benefits for all the agents.
1. A method for dynamically allocating control rights to offset risks and to optimize net gain or net loss associated with an inventory of at least one of assets and liabilities used to secure an extension of credit, the method comprising:
providing at least one respective agreement related to the extension of credit to be executed by each of a plurality of counterparties; receiving from each of the counterparties an executed respective agreement, whereby the counterparties become contractually bound; receiving from at least some of the counterparties respective inventory for securing the extension of credit; aggregating the respective inventory into an inventory pool; charging a respective margin amount to each of the at least some of the counterparties, wherein the respective margin amount is proportional to an initial value of each the at least some counterparty's pro rata inventory contribution and a function derived from state-dependent and path-dependent dynamics governing the value of that contribution over time, and further wherein the respective margin amount is subject to change over time; securing the extension of credit with the inventory pool; and allocating the control rights to at least some of the inventory in the inventory pool in case at least one respective agreement term is not met by at least one of the counterparties. 2. The method of claim 1, wherein the respective agreement sets forth at least one of respective intermediation requirements and incentives associated with respective expectations of the counterparties.
3. The method of claim 2, wherein the expectations are defined as a function of state-dependent, path-dependent, or state-dependent and path-dependent simulations.
4. The method of claim 2, further comprising implementing at least one of the respective intermediation requirements to minimize costs and maximize benefits associated with each counterparties' performance.
5. The method of claim 1, wherein the governing includes at least one of value, volatility, value at risk, asset liquidity, and interest.
6. A method for managing a plurality of transactions for a plurality of parties, the method comprising:
simulating states and paths for each of the plurality of parties in connection with the plurality of transactions; accounting for evolving contractual rights and duties among the plurality of parties, wherein the accounting includes determining decision paths and allocation of rights and obligations across a plurality of each of the plurality of parties' respective simulated states and paths; mitigating risk and optimizing net gains or net losses associated with each of the transactions as a function of the accounting; and enforcing at least one of the plurality of transactions for each of the plurality of parties. 7. The method of claim 6, further comprising securing the contractual rights and duties.
8. The method of claim 7, wherein the securing includes offsetting payments associated with the contractual rights and duties relative to each of the respective simulated states and paths.
9. The method of claim 6, further comprising accounting for probable outcomes as a function of activities of each of the plurality of parties.
10. The method of claim 9, wherein the accounting comprises an orthogonal garch methodology.
receiving a notification that at least two of the plurality of parties exchange respective paths; re-simulating states and paths for the at least two parties; and accounting for evolving contractual rights and duties among the plurality of parties as a function of the re-simulated states and paths. 12. A system for dynamically allocating control rights to offset risks and to optimize a net gain or net loss associated with an inventory of at least one of assets and liabilities used to secure an extension of credit, the system comprising:
at least one respective agreement related to the extension of credit to be executed by each of a plurality of counterparties; a plurality of agents operable to interface with the counterparties; an executed respective agreement received from each of the counterparties, whereby the counterparties become contractually bound; respective inventory received from at least some of the counterparties for securing the extension of credit; an inventory pool comprising of the aggregated respective inventory; and a respective margin amount charged to each of the at least some of the counterparties, wherein the respective margin amount is proportional to an initial value of each the at least some counterparties' pro rata inventory contribution and a function derived from state-dependent and path-dependent dynamics governing the value of that contribution over time, and further wherein the respective margin amount is subject to change over time; wherein the extension of credit is secured with the inventory pool, and further wherein the control rights to at least some of the inventory in the inventory pool are allocated in case at least one respective agreement term is not met by at least one of the counterparties. 13. The system of claim 12, further comprising:
a funder account for the extension of credit; and a collateral buffer account for inventory that is available for transfer, wherein at least some of the agents operate to map the counterparties' objective states to conditional probabilities. 14. The system of claim 13, wherein the conditional probabilities are mapped as conditional expectations onto conditional utilities, and the conditional utilities are mapped onto conditional payoffs resulting in a contingent payoff function of the at least some agents.
15. The system of claim 12, wherein the agents employ a library of dynamic and endogenous hierarchy of rules corresponding to a future or history of states and paths of the agents.
16. The system of claim 15, wherein the rules encompass the continuum of contingencies materially relevant to transactions among the counterparties.
17. The system of claim 15, wherein the rules are used to formulate contracts to be entered into between the funders, the counterparties.
18. The system of claim 12, wherein at least one of the agents transacts on behalf of one of the respective counterparties.
19. The system of claim 18, wherein the at least agent transacts based upon a state-dependent utility function, a path of realized states and simulated paths of future states.
20. The system of claim 19, wherein the at least one agent may choose to:
pay a termination penalty to exit the system, wherein termination penalty is based upon an opt-out function; or pay a substitution/replacement option premium in order to exchange a path history with another agent, wherein the premium is based upon a path-switching function. 21. The system of claim 20, wherein the payments are deducted from at least one account accessible by the respective agent engaged in opting out or switching paths.
22. A dynamic open system for distributed stochastic control of strategic interactions among dynamic optimizing agents across random states, wherein the actions of any one affects the joint costs and benefits for all the agents. Description
CROSS-REFERENCE TO RELATED APPLICATION This application is based on and claims priority to U.S. Provisional Patent Application Ser. No. 60/890,861, filed on Feb. 21, 2007 and entitled SYSTEM AND METHOD FOR DYNAMIC PATH-AND STATE-DEPENDENT STOCHASTIC CONTROL ALLOCATION, the entire contents of which is hereby incorporated by reference.
SUMMARY The systems and methods described herein address these shortcomings by employing contractual bargaining via agent-based computational methods for dynamic allocation, optimization, and pricing contingent obligations between multiple counterparties. The processes preferably employ a hierarchy or tiering of binding incentive compatible contingent strategies which include optimal liquidation policy for matched assets and liabilities based upon stochastic volume/price schedule related to statistically non-stationary supply/demand elasticities and order-flow, as well as variations in market microstructure.
DESCRIPTION OF EMBODIMENTS The present invention relates to multiple transactions across a plurality of parties and operates to mitigate collective risk and optimize collective gain notwithstanding the parties being subjected to state-dependent conditions. This balances individual incentives with collective incentives and encourages parties to participate. In part, this is accomplished by accounting for evolving contractual rights and duties among a plurality of parties by considering decisions and allocation of rights across states and paths. Further, the present invention operates to secure contractual rights, including, by offsetting corresponding payments, across simulated states and paths. Further, the present invention accounts for probable outcomes given activities of other parties to related transactions. In a preferred embodiment, the present invention further supports parties exchanging paths, and regularly and frequently recalculates values and simulates states given a plurality of paths in accordance with the exchanged positions.
Each of the relevant contracts between the transacting parties (commonly referred to as �counterparties� in financial and commercial transactions) is translated into a library of binding contractual rules possessed by each agent. The library is structured to encompass the continuum of all contingencies materially relevant to the transactions between the counterparties' agents. At each date, as each transitional state is realized, each agent may transact on behalf of its respective counterparty, based upon a state-dependent utility function, the path of realized states and simulated paths of future states. In order to maximize individual or collective expected utility, agents may choose either of the following: (A) based upon an opt-out function, at any date, any agent may pay a termination penalty to exit the system. (B) Based upon a path-switching function, any two or more agents may pay a substitution/replacement option premium in order to exchange path histories. These relevant �side payments� (premium or penalty) are deducted from the (endowment, spread reserve, contingent payoff) accounts of those respective agent(s) engaged in opting out or switching paths.
Referring now to the drawings figures in which like reference numerals refer to like elements, there is shown in FIG. 1 a diagram of an example hardware arrangement that operates for control allocation of assets and rights, constructed in accordance with the present invention, and designated generally as �control allocation system 100.� Control allocation system 100 is preferably comprised of one or more information processors 102 coupled to one or more user terminals 104 across communication network 106. Further, printed output is provided, for example, via output printers 110.
As used herein, references to displaying data on user terminal 104 refer to the process of communicating data to the terminal across communication network 106 and processing the data such that the data can be viewed on the user terminal 104 display 214 using a web browser or the like. The display screens on user terminal 104 present areas within control allocation system 100 such that a user can proceed from area to area within the control allocation system 100 by selecting a desired link. Therefore, each user's experience with control allocation system 100 will be based on the order with which (s)he progresses through the display screens. In other words, because the system is not completely hierarchical in its arrangement of display screens, users can proceed from area to area without the need to �backtrack� through a series of display screens. For that reason and unless stated otherwise, the following discussion is not intended to represent any sequential operation steps, but rather the discussion of the components of control allocation system 100.
Moreover, although many of the drawings and examples set forth herein refer to counterparties 302 and funders 304 as separate and distinct parties, the invention is not so limited. In various contexts, funders are counterparties to contractual and/or financial arrangements. Further, given a particular context that is associated with a contractual and/or financial arrangement, borrowers of capital can evolve into lenders and back to borrowers over time (e.g., by extending credit) and in connection with various parties. Accordingly, use of reference numerals, including 302 and 304 that represent counterparties and funders, respectively, is intended for purposes of illustration and not meant to limit the invention by imposing strict contextual relationships. Moreover, and as known in the art (and occasionally used herein) and particularly with respect to one aspect of the present invention regarding term repurchase agreements, counterparties 302 that pledge collateral assets to secure a loan are referred to as �sellers.� Therefore, and as recognized by one skilled in the art, various nomenclature for identifying parties changes with respect to the relative relationships of the parties to each other, as well as with respect to the relative contexts of financial, contractual or other arrangements and agreements between the parties.
In addition to providing collateral assets to secure a loan with funders 304, counterparties 302 preferably tender a payment, referred to herein as a �margin� to funders 304. The margin amount is a deposit made by counterparties 302 to funders 304 and represents a percentage of a calculated value of the pledged collateral. In accordance with a preferred embodiment, collateral is valued regularly and preferably frequently, for example, daily. In one embodiment, brokers/dealers 308 perform services associated with valuing and/or disposing (e.g., liquidating) collateral in the market 312. In one embodiment, verifiers 310 are employed to ensure that brokers/dealers 308 operate as instructed and/or to ensure that collateral is fairly valued by brokers/dealers 308. Further, margins are preferably charged to each counterparty 302 and calculated regularly and frequently. Margins are preferably calculated as a function of the value of collateral, and the relative volatility (or other risk) of collateral.
FIG. 4 is a block diagram that illustrates parties, assets and capital in accordance with an embodiment of the present invention. The embodiment shown in FIG. 4 represents a repurchasing arrangement, wherein counterparties 302A, 302B, 302C, 302D and 302E pledge collateral 402 to funders 304, pay a margin 404 and maintain margin reserves 406, which may require additional payments over time, as described herein. Moreover, a buffer account 408 is preferably maintained for collateral 402 that is available for transfer, such as by disposal by broker/dealers 308 to buyers 314. In the example shown in FIG. 4, counterparty 302A has pledged the most collateral 402, valued at $300M, while counterparty 302E has pledged the least, valued at $100M. Accordingly, counterparty 302A has paid the highest margin 404, and, depending upon various market movements and other conditions, may have to add to his margin reserve over time.
Preferably, various models are employed that support a plurality of funders 304 and a plurality of counterparties 302. Notwithstanding counterparties 302 treated by funders 304 as a single group, particularly for purposes of valuing collateral 402, each individual respective counterparty 302 is responsible for its respective individual contribution to the pool. For example, multiple counterparties 302 together pledge a pool of collateral 402 and, similarly, counterparties pledge a margin pool to funders 304. Counterparty 302A pledges $300M worth of collateral 402 and counterparty 302B pledges $250M. The collective margin percent is 10%, and counterparty 302A contributes $30M in cash to its respective margin, while counterparty 302B contributes $25M.
In case one counterparty 302 elects not to increase its margin, then its collateral 402 inventory may end up being transferred into a buffer account 408. Once in the buffer account 408, collateral 402 becomes available for sale. Preferably, a counterparty's margin is also transferred into buffer account 408 in case the counterparty's collateral 402 is transferred. Once transferred into buffer account 408, the margin becomes available to support other transactions related to settlement of the loan and/or the disposition of the respective counterparty's collateral 402. In case of disposition and a deficit is incurred, counterparty 302 is preferably issued an �I.O.U.� for the debt. Typically, this occurs when there is a bad valuation of collateral 402. In one embodiment, depending upon the terms of the contract between the parties, funders 304 may impose a repayment schedule on a counterparty 302 at a high interest rate. Alternatively, funder 304 may set a value, X dollars, that a counterparty 302 will pay in case a margin is not maintained, or that the counterparty 302 will pay a present value of that ($X) amount at some future time.
In accordance with a preferred embodiment, a right or a contingent right to control of one or more assets can be traded for actual cash flow or a contingent liability. A tradeoff of current cost benefits and regularly or dynamically updated discounted present value of future gains and benefits, depending upon contingent paths and states. In one embodiment, a determination of contingent states and paths is made by employing one or more formulaic strategies, such as known dynamic programming equations or �Bellman� Equations, and/or Nash Equations as known in the art, to calculate the probabilities associated with contingent paths and states, including of counterparties 302, nature, market forces or other random or stochastic events and conditions. Preferably, calculations are performed to identify and/or predict path and state contingencies for a plurality of parties who having different interests over time. The predicted contingencies are preferably used by counterparties 302, funder agents 304, brokers/dealers 308 or others associated with the present invention, in order to calculate values of contingent control rights, current cash flow and a relationship there-between.
In accordance with a preferred embodiment, solved across one or more of a series of Bayesian models, Bellman equations and Euler conditions, stochastic views for each respective player (e.g., counterparties 302) can be determined. Moreover, by applying various game theoretic methodologies, such as a Kernel or Core, can be uncovered wherein everyone's optimum meets, thereby ensuring that contractual terms for and between the various parties are provided that will be amenable to all involved. Alternatively, in case one or more terms are not amenable to one or more parties to an agreement, the contractual terms are preferably chosen such that bargaining between the parties is supported for one or more provisions, without departing from the overall spirit and impact of the agreement. Preferably, then, a set of rewards and value functions are provided that relate to decision paths making rules that apply for stochastic conditions, referred to herein, generally, as �stochastic dominance.� The rules operate across all (or nearly all) possible states and all (or nearly all) possible decision paths, and are developed to be agreeable to all parties, in order to conform to each party's anticipated respective states and paths.
In one embodiment, the present invention provides for an evolutionary stable equilibrium (�ESS�) as a solution method for dynamic and endogenous interdependencies between diverse counterparties 302 over time. For example, counter parties 302 may enter or leave system 200 in accordance with various conditions that occur over time. Complex scenarios involving multiple funders 304, multiple funders 304, and multiple counterparties 302 with respect to a highly diversified pool, of collateral is preferably supported and well managed by the teachings herein. Moreover, the invention supports the complex interrelationships between the parties, and across the tangible and intangible collateral 402 managed thereby. The systems and methods herein manage the various relationships of the parties including as each party's behavior impacts another. Within the complex set of rules and procedures applied to measure stochastic outcomes, each party finds a respective place. Preferably, this occurs as a function of (relatively) simple Nash Equations, as known in the art, thereby employing an analytical approximation to find an evolutionary stable equilibrium. Depending upon a particular embodiment or implementation, for example, by proprietor 301, more complex formulaic approaches may be employed, such as with partial differential equations and finite difference methods to determine a reasonably robust analytic selection that satisfies the group, the thresholds around acceptability among the individual counterparties 302 or the group of counterparties 302.
Continuing with the present example, at Time( ), each company has to decide whether to purchase leisure suits, platform shoes, or some combination thereof. Also, the companies must elect respective styles, colors and materials. None of the parties are able to predict the future and know in advance what will be popular. It may be, for example, that a well-known celebrity influences the market by wearing a silk leisure suit with anaconda snakeskin shoes. The seller who purchases silk suits with anaconda shoes for resale, before that particular combination is in high demand, covers his costs and makes a significant profit. If, on the other hand, that combination is not in demand, then the seller who purchases silk suits and/or anaconda shoes will have huge losses. The seller who purchase polyester suits and/or vinyl shoes will suffer a much lower loss in case that trend is not popular. However, the seller of polyester suits and/or vinyl shoes does not stand to make as much profit because his mark-up is not as high. Therefore, as with virtually all business ventures, there a cost benefit analysis is desirable to offset losses while ensuring profits.
FIG. 5 is a state diagram representing a plurality of parties and a plurality of transactions 500 over time. As shown in FIG. 5, counterparties 302 (shown as �M parties�), with common information I and private information �m, precommit to transact over the period from date to T, by pledging at to their respective capital endowment, Eo. All parties observe each state kt, and transact at each date (decision node) in accordance with their utility function and based upon their expectations (computed rationally from 1 and �m) regarding the path of future states from tn to T.
FIG. 7 illustrates paths 700 associated with functional software agents 702A, 702B, 702C and 702D that operate to employ a variety of functions, mechanisms, and devices. Software agents 702A-702D preferably map objective states to subjective or �conditional� probabilities. Preferably, the conditional joint probability distributions are mapped as conditional expectations onto conditional utilities, which are then mapped onto conditional payoffs. The result is a contingent payoff function, which may be represented as a multi-dimensional surface (i.e. a manifold) comprised of paths of �conditional� state-dependent outcomes. For example, and as shown in FIG. 7, the �conditional� state-dependent outcomes include conditional private expectations, conditional decision weights and payoffs.
FIG. 9 illustrates component aspects of agents 702, in accordance with a preferred embodiment. Each agent 702 preferably comprises components for supporting the teachings herein. As shown in FIG. 9, three accounts are provided including an endowment pledge account, a margin reserve, shown in this case as a �spread� reserve, as known in the art), as it accumulates, and a contingent payoff account to support gains or losses in connection with disposition of collateral 402. Further, a library of hierarchical contractual and procedural rules, which are subject to dynamically change and evolve, is preferably analogous to contingent contracts is supported. Moreover, a utility function for determining subjective, probability and decision states (shown as weights or �wgts�) is provided. Moreover, a contingent payoff function is preferably provided. Also shown in FIG. 9 is a computing engine that preferably performs estimation, forecasting, inference, simulation and optimization operations. Moreover, messaging is supported, including sender and receiver signaling and messaging. Further, search engine technology is further provided to support searching and matching functionality.
Examples of transactions, instruments and applications are provided below: complex insurance, hedging, and funding (repo, swaps, etc.) activities. Specialty Finance, Structured Insurance, Alternative Risk Transfer (�ART�), Finite/financial reinsurance and tradeable insurance, Insurance derivatives, Insurance wrapped defeasance account (stable value, Guaranteed Investment Contract or �GIC�) with conduit financing, Counterparty credit netting activities/vehicles: (collateralized credits versus debits with credit intermediation, e.g. structured bank liquidity or financial guarantees as capital (operational risk policy, surety, performance bond) to pay as claims come due, Customized risk overlays reference portfolio with derivative instruments overlay, Reference indices, baskets or portfolios that may involve life (mortality/longevity), equity, futures, indices/baskets; Industry Loss Warranty (�ILW�), Catastrophe Risk Swap (�Cat Swap�)/option, treaty, indemnity, GIC, etc.
The present invention is also applicable for designing, operating and maintaining (as Complex Adaptive Systems), the any netting arrangement involving multiple counterparties, especially which may involve asset illiquidity, regime shifting of the market environment, and informational asymmetries: Electronic Clearing Networks (�ECN's�)/Electronic Trading Markets (e.g., Derivative Exchange Trading Facility or Derivative Electronic Trading Facility (�DETFs�) involving insurance, hedging and funding (repo, swaps, contracts-for-synthetics, etc.), credit/trade credit facilities and/or collateral mgmt programs (Business-to-Business (�B2B�), 3PL Third-Party Logistics (�3PL�) applications; integrated Straight-Through-Processing, reconciliation/settlement systems); netting arrangements with multiple counterparties for auctions; self-financing risk intermediation vehicles (conduits, swap and repurchase agreement (�repo�) netting facilities, derivative product companies, structured investment vehicles, insurance captives and transformers, clearinghouses, etc).
In general, the present invention is applicable to any capital intermediation platform involving bundles of insurance contracts, master/netting arrangements, back to back financial instruments (e.g. swaps, options, repos, futures/forwards, CfDs, etc), Letters of Credit (�LCs� or �LOCs�), guaranties, warranties, receivables, as well as other cash or contingent liabilities. In conjunction with conventional asset/liability management systems and economic capital allocation models for netting and offset of multi-lateral financial claims (i.e. risk-bearing capacity) within financial intermediation/trading environments and structured investment vehicles, the process is intended to more perfectly match sequentially-linked contingent claims and hence more completely span states of nature, thereby substituting more effectively matching contingent claims for paid-in capital, in order to minimize the amount of capital, and the related the cost of maintaining reserves, required to support transactions within these environments. Hence this process also includes a method for imbedding liquidity options into financing structures, applicable to a broad range of multi-lateral contingent capital structures with application to the active management of assets and liabilities for self-financing risk intermediation vehicles and facilities (conduits, SwapCos, etc.).
Step S102: Pre-commitment Period: Generally between ten-fifteen business days: 1. Funders and/or sellers review Global Master Repurchase Agreement (�GMRA�), Custodial Undertaking (�CU�) (i.e., a supporting schedule for the GMRA), and Supporting Annexes II, as known in GMRA & I repurchase agreements. 2. Sellers submit pool-cut for model tie-out by conduit managers, collateral agents, funders, and other vendors to the conduits. 3. Conduit manager negotiates eligibility requirements/max. concentrations with funders and/or agencies 4. Conduit Manager negotiates pricing rate/tenor tradeoffs, notification periods, cure periods, termination triggers, and orderly termination/liquidation procedures with Funders. 5. Conduit Manager negotiates pricing, discretionary substitutions, and over-collaterization levels for Sellers' collateral pool. 6. Funders and/or Sellers begin documenting accounts/establishing operating procedures with CA/Custodian Bank (Pre-closing process begins).
Step S104: Commitment Date: Generally one day. 1. Funders execute GMRA, CU, and Supporting Annexes I & II with Owner. 2. Funders' GMRAs, CUs and Supporting Annexes escrowed with Custodian Bank. 3. If commitment is �pre-funded�, Funder transfers funds to respective Funder account for disbursement on Purchase Date, once conditions for closing are satisfied; if commitment is �unfunded�, then Funder transfers funds to respective Funder account on the Purchase Date for disbursement, once conditions for closing are satisfied. (Pre-closing process completed).
Step S106: Closing Date (initial Purchase Date): Generally 1 Day. 1. Funders advance Purchase Price to Custodian, if commitment unfunded. 2. Custodian transfers Purchase Price to Funder's Account. 3. Conduit Manager and verification agent (�VA�) tie-out model estimates of OC with Funders and Sellers for Purchased Securities to be transferred to the Collateral Account. 4. Pursuant to instructions of paying agent (�PA�) under collateral administration agreement (�CAA�), Custodian disburses funds from Funder's Account as advance to fund Purchase Price of Purchased Securities in Collateral Account. 5. VA verifies reconciliation of eligible collateral transfers/fund flows/payments and margin compliance based on activity report provided by Paying Agent, Custodian, and CAA. 6. Counsel affirms validity of required opinions (enforceability, security opinion, tax). 7. Conduit Manager reaffirms VA reconciliation of collateral transfers/fund flows/payments and margin compliance based on activity report provided by Paying Agent, Custodian, and CAA.
Step S108: Funding Period (Stated Tenor of Facility): Generally greater than or equal to ninety days. 1. At the end of each business day, CA calculates the daily market value of Collateral Account, based on prior business day's end-of-day closing price from the pricing source for each Purchased Security in Collateral Account and adjusts the Daily Collateral Levels to conform to the Collateralization Tests, by transferring Cash Equivalents between the Margin Accounts and Margin Reserve Accounts. 2. Conduit Manager affirms the validity of the Daily Collateral Level Adjustments, and in the event of a pricing disparity or dispute submitted by Funders or Sellers, facilitates the timely resolution of the dispute between Funders, Owner, and Sellers. 3. In the event of a Collateral Level Deficit, Conduit Manager facilitates communications between Seller PBs, Sellers, and CA regarding remedies by Owner/Seller (margin calls, substitutions, partial repurchases). 4. In the event of a �Failure to Cure�, Conduit Manager coordinates model tie-out, and facilitates communication between Funders, Seller Prime Brokers (�PBs�) Sellers, and CA regarding remedies by Funders (partial liquidations) 5. In the event of discretionary repurchases Owner's and/or Seller's Calls or substitutions by Sellers, Conduit Manager coordinates model tie-out, and facilitates communication between CA, Sellers, Seller PBs, and Funders. 6. In the event of �Early Termination�, Conduit Manager facilitates communication between CA, Sellers, and Funders regarding repurchases and orderly liquidation of Purchased Securities in the Collateral Account, and transfers of cash equivalents between accounts by custodian based on instructions in the GMRA, CU, and respective supporting Schedules.
Step S110: Early Termination: Generally, fifteen, twenty or twenty-five days. Upon Owner events of default, downgrade of Custodian Bank, �Persistent Failure to Cure�, and violation of early termination trigger due to extreme and/or persistent decline in the market value of the collateral account i.e., generally 35%, Conduit Manager will coordinate with CAA to facilitate the orderly liquidation procedures outlined in Schedules X, Y, Z.
Step S112: Stated Termination(�Stated Repurchase Date�): Generally 1 day. On the Stated Repurchase Date (and during the pre-termination period leading up to the Stated Repurchase Date), Conduit Manager facilitates communication between CA, Funders, Seller PBs, and Sellers regarding the following termination procedures as outline in Schedules X, Y, Z: 1. Custodian collects advances due to repaid by Seller PBs to the Funders and directs the pro rate shares to the Funders' Accounts, amounts due to the Funders. 2. Upon verification by Funders' agents of full repayment of any and all amounts due, Funder releases its security interest in the Purchased Securities in the Collateral Account 3. Upon instructions from CA, Custodian releases remaining collateral to Sellers.
Metric 1: Value at Risk (�VaR�). The VaR metric preferably uses the following inputs: (a) confidence interval (∝), (b) the time horizon over which the portfolio would be held (T), (c) number of simulation runs (N) (d) number of paths/run of simulation (m=100 by default).
The output is preferably (a) the percentage of times the value of the portfolio goes down (compared to the initial starting value) below the threshold level (B) and stays for T′ days below this threshold level; and (b) the average drop in the value of the portfolio (compared to the initial starting value) conditional on (a) happening. For example, β1=−5%, T′=2 days, T=10 days, m=10 and the starting value of the portfolio is $100. When the portfolio value is simulated, the following path is obtained: $102 (day 1), $98 (day 2), $94 (day 3), $90 (day 4), $94 (day 5), $96 (day 6), $98 (day 7), $90 (day 8), $95 (day 9) and $97 (day 10).
The following describes in a preferred embodiment, Orthogonal Generalized Autoregressive Hetero Skedasticity (�garch�) is employed for the methodology. Preferably, the steps that are performed are as follows.
Choice A. Auto Regressive Moving Average (�ARMA�) process for the conditional mean. For simplicity and consistency with known procedures in the art, the order of the ARMA is restricted to be ARMA(1,1), as the most general. Thus, a choice between; i. the constant conditional mean which corresponds to ARMA(0,0); ii.an ARMA(1,0), which corresponds to a process with an AR component but no MA component; and iii. an ARMA(0,1), which corresponds to a process with no AR component but with an MA component, and iv. ARMA(1,1) which has both AR and MA components.
The ACF and PACF are produced up to a maximum of 10 lags. The criteria for choosing between ARMA(0,0), ARMA(1,0), ARMA(0,1) and ARMA(1,1) are preferably as follows: i. if neither the ACF nor the PACF show any spikes at any of the lags, then the time series process resembles white noise and hence the constant conditional mean, or ARMA(0,0), is a suitable approximation for he conditional mean process of that principal component. ii. if the PACF declines exponentially then there is an AR component to the process while if he ACF declines exponentially then there is an MA component to the process. Thus, if the PACF declines exponentially while the ACF shows spikes at certain lags but does not decline exponentially, then that is indicative of an AR component to the process but no MA component, and ARMA(1,0) is chosen in this case. iii. If the ACF declines exponentially while the PACF shows spikes at certain lags but does not decline exponentially, then that is indicative of an MA component to the process but no AR component, and ARMA(0,1) is chosen in this case. iv. If the ACF and PACF both show persistent spikes at a large number of lags, then there is both an AR and an MA component to the time series, and ARMA(L, 1) is chosen in this case.
Referenced byCiting PatentFiling datePublication dateApplicantTitleUS7925581 *Feb 21, 2008Apr 12, 2011Mordecai David K ASystem and method for dynamic path- and state-dependent stochastic control allocationUS8032451Feb 14, 2011Oct 4, 2011Mordecai David K ASystem and method for dynamic path- and state-dependent stochastic control allocationUS8145552Jul 8, 2010Mar 27, 2012The Bank Of New York MellonSystem and method for computer implemented collateral managementUS8315939Feb 8, 2012Nov 20, 2012The Bank Of New York MellonSystem and method for computer implemented collateral managementUS8543494Jan 8, 2010Sep 24, 2013Bank Of America CorporationShared appreciation loan modification system and methodUS8639609Dec 9, 2011Jan 28, 2014Chicago Mercantile Exchange Inc.Cross margining of tri-party repo transactionsUS20090018873 *Apr 4, 2008Jan 15, 2009Goldman, Sachs & Co.Deferred Premium AnnuitiesWO2012006452A1 *Jul 7, 2011Jan 12, 2012The Bank Of New York MellonSystem and method for computer implemented collateral managementWO2013085689A1 *Nov 15, 2012Jun 13, 2013Exxonmobil Upstream Research CompanyMethod for developing a long-term strategy for allocating a supply of liquefied natural gasWO2013085690A1 *Nov 15, 2012Jun 13, 2013Exxonmobil Upstream Research CompanyMethod of stimulating shipping of liquefied natural gas* Cited by examinerClassifications U.S. Classification705/38International ClassificationG06Q40/00Cooperative ClassificationG06Q40/04, G06Q40/025, G06Q40/00, G06Q20/10, G06Q40/06, G06Q30/0238European ClassificationG06Q40/06, G06Q40/00, G06Q20/10, G06Q30/0238, G06Q40/04, G06Q40/025RotateOriginal ImageGoogle Home - Sitemap - USPTO Bulk Downloads - Privacy Policy - Terms of Service - About Google Patents - Send FeedbackData provided by IFI CLAIMS Patent Services©2012 Google