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Investigating methods for minimising Position Risk Requirement and Initial Margin by suggesting risk reducing trades
Umeå University, Faculty of Science and Technology, Department of Mathematics and Mathematical Statistics.
2019 (English)Independent thesis Advanced level (professional degree), 20 credits / 30 HE creditsStudent thesis
Abstract [en]

Initial Margin and Position Risk Requirement are two capital requirements that financialinstitutions in the United Kingdom must allocate funds to with respect to the financialcontracts that they hold in their portfolios. Since the allocation of funds into capitalrequirements add constraint on these financial institutions concerning how much businessthey can conduct it could be of interest for them to find a way to lower these capitalrequirements. A Genetic Algorithm and a Greedy Algorithm were investigated to see ifthey could take an input portfolio of positions on financial contracts and find the optimalsolution which will always be to add the offsetting positions, creating an empty portfolio.This was done to more easily be able to see how well the methods worked concerning thetask at hand. An example of a scenario where such a trivial solution would not exist isif some sort of constraint is added to the problem, such as if some instruments are notallowed to be traded. Initial results suggest that a Genetic Algorithm is promising in thisregard, especially when it comes to bigger portfolios.

Abstract [sv]

SammanfattningInitial Margin och Position Risk Requirement är två kapitalkrav som finansiella institu-tioner i Storbrittanien måste allokera kapital till beroende på de finansiella kontrakt somhålls i deras portföljer. Eftersom denna allokering av kapital begränsar dessa finansiellainstitutioner med avseende på hur mycket affärer de kan utföra så skulle det kunna varaav intresse för dem att hitta ett sätt att sänka dessa kapitalkrav. En Genetisk Algoritmoch en Girig Algoritm undersöktes för att se om de utifrån en portfölj av positioner påfinansiella kontrakt kunde hitta den optimala lösningen vilken alltid kommer vara attlägga till neutraliserande positioner, vilket skapar en tom portfölj. Detta gjordes för attenklare kunna se hur väl metoderna fungerade på problemet. Ett exempel på ett scenariodär en sådan trivial lösning ej existerar är om någon slags begränsing adderas till proble-met, exempelvis att vissa instrument ej tillåts handlas. Tidiga resultat indikerar att enGenetisk Algoritm verkar lovande, särskilt när det handlar om större portföljer.

Place, publisher, year, edition, pages
2019. , p. 30
National Category
Mathematics
Identifiers
URN: urn:nbn:se:umu:diva-160524OAI: oai:DiVA.org:umu-160524DiVA, id: diva2:1327504
External cooperation
Nasdaq Inc
Educational program
Master of Science in Engineering and Management
Supervisors
Examiners
Available from: 2019-06-20 Created: 2019-06-19 Last updated: 2019-06-20Bibliographically approved

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CiteExportLink to record
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Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf