System and method for multi-factor modeling, analysis and margining of credit default swaps for risk offset
A method for determining a margin requirement associated with a plurality of financial instruments within a portfolio is disclosed. The method includes receiving a plurality of data associated with the plurality of financial instruments within the portfolio, determining a shock value for each of a plurality of risk factors within a multi-factor risk model, such that the shock factor is determined based on the received plurality of data, calculating a maximum risk margin for each of the plurality of risk factors, and calculating a total multi-factor risk margin based on maximum risk margin for each of the plurality of risk factors.
1. A method for determining a margin requirement associated with a plurality of financial instruments within a portfolio, the method comprising:
receiving a plurality of data associated with the plurality of financial instruments within the portfolio;
determining, using a processor, a shock value for each of a plurality of risk factors within a multi-factor risk model, wherein the shock factor is determined based on the received plurality of data;
calculating, using the processor, a maximum risk margin for each of the plurality of risk factors, wherein the maximum risk is a function of the shock value associated with each of the plurality of risk factors;
calculating, using the processor, a total multi-factor risk margin based on maximum risk margin for each of the plurality of risk factors; and
sending data indicative of the total multi-factor risk margin to a device.
2. The method of claim 1 , wherein calculating, using the processor, a maximum risk margin for each of the plurality of risk factors comprises:
determining a maximum systematic risk margin based on at least a portion of the received plurality of data;
determining a maximum curve risk margin based on at least a second portion of the received plurality of data;
determining a maximum convergence and divergence risk margin based on at least a third portion of the received plurality of data;
determining a maximum sector risk margin based on at least a fourth portion of the received plurality of data;
determining a maximum idiosyncratic risk margin based on at least a fifth portion of the received plurality of data;
determining a maximum liquidity risk margin based on at least a sixth portion of the received plurality of data; and
determining a maximum basis risk margin based on at least a seventh portion of the received plurality of data.
3. The method of claim 2 , wherein calculating a multi-factor risk margin including summing a systematic risk margin, a curve risk margin, a convergence and divergence risk margin, a sector risk margin, an idiosyncratic risk margin, a liquidity risk margin, and a basis risk margin.
4. The method of claim 1 , wherein at least one of the plurality of financial product comprises a credit derivative.
5. The method of claim 4 , wherein the credit derivative comprises a credit default swap.
6. A method for determining a margin requirement associated with a plurality of financial instruments within a portfolio, the method comprising:
receiving, using a processor, a plurality of data associated with the plurality of financial instruments within the portfolio;
calculating, using the processor, a maximum systematic risk margin based on at least a portion of the received plurality of data;
determining, using the processor, a maximum curve risk margin based on at least a second portion of the received plurality of data;
calculating, using the processor, a total multi-factor risk margin based on one more of the determined risk factors; and
sending data indicative of the total multi-factor risk margin to a device.
7. The method of claim 6 further comprising:
calculating a maximum convergence and divergence risk margin based on at least a third portion of the received plurality of data.
8. The method of claim 6 further comprising:
calculating a maximum sector risk margin based on at least a fourth portion of the received plurality of data.
9. The method of claim 6 further comprising:
calculating a maximum idiosyncratic risk margin based on at least a fifth portion of the received plurality of data.
10. The method of claim 6 further comprising:
calculating a maximum liquidity risk margin based on at least a sixth portion of the received plurality of data; and
calculating a maximum basis risk margin based on at least a seventh portion of the received plurality of data.
11. The method of claim 6 , wherein at least one of the plurality of financial product comprises a credit derivative.
12. The method of claim 11 , wherein the credit derivative comprises a credit default swap.
13. The method of claim 6 , wherein calculating a multi-factor risk margin including summing a systematic risk margin, a curve risk margin, a convergence and divergence risk margin, a sector risk margin, an idiosyncratic risk margin, a liquidity risk margin, and a basis risk margin.