System and method for dynamic path- and state-dependent stochastic control allocation

Abstract

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.

What is claimed is: 
     
         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. 
     
     
         11 . The method of  claim 6 , further comprising:
 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.