System and method for using diversification spreading for risk offset

A computer-implemented method of determining the risk associated with a portfolio of products traded on an exchange, the method comprising:

• analyzing a portfolio including a plurality of products where each of the plurality of products is associated with market data;
• calculating an initial margin for the portfolio;
• determining a first group within the plurality of products, wherein the first group includes interdependent products having a first market response in response to a change in the market data;
• determining a second group within the plurality of products, wherein the second group includes interdependent products having a second market response in response to the change in the market data;
• calculating a first diversification spread for the first group and a second diversification spread for the second group;
• calculating a diversification spread credit for each of the first and second groups;
• and
• adjusting the initial margin as a function of the first diversification spread credit and the second diversification credit.

A system for managing risk associated with a portfolio of products traded on an exchange, the system comprising:

• a memory;
• a program logic stored on the memory and configured to execute in conjunction with at least one processor;
• a diversification spread processor communicatively coupled to the memory and the program logic, the diversification spread processor configured to:
• compare a first market response of a first product in the portfolio with a second market response of a second product in the portfolio, wherein the first and second market responses result from a change in market data;
• calculate an offsetting effect based between the first market response and the second market response, wherein the first and second market responses are different responses to the same change in the market data;
• determine a diversification spread the offsetting effect between the first product and the second product;
• a diversification spread credit processor communicatively coupled to the memory and the program logic, the diversification spread credit processor configured to calculate a diversification spread credit based on the determined diversification spread;
• and
• a margin adjustment processor communicatively coupled to the memory and the program logic and configured to adjusting a margin requirement for the portfolio based on the diversification spread credit.