System and method for creating, managing and trading hedge portfolios
AssigneeGoldman, Sachs & Co.
InventorsSteven Harris Strongin, II, Lewis Segal, Ingrid Tierens
Life of this patent
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Abstract
The present invention discloses apparatuses, systems and methods for providing optimal hedge portfolios that minimize single stock idiosyncratic risk for a given level of transactional costs. This is accomplished by deriving hedge portfolios with the maximum effective n for various levels of transaction costs. In one exemplary embodiment the maximum effective n portfolios are derived by starting with a sample portfolio, such as a capital weighted index, and using a hill climbing algorithm to iteratively modify the sample portfolio to map out the optimal effective n portfolios.
Claims20
A computer processor implemented method of providing an optimal hedge portfolio comprising:
- receiving, at a computer processor, an optimal hedge portfolio creation request;
- identifying, by the computer processor, a relevant investing sector and investing style;
- receiving a requested level of transactional costs;
- deriving, by the computer processor, a selection of securities associated with the identified investing sector and investing style representing a maximum achievable effective n for the requested level of transactional costs;
- revising the selection of securities by removing securities having transaction costs that exceed a threshold;
- receiving an investment portfolio;
- determining, by the computer processor, a hedge ratio by comparing the investment portfolio to the revised selection of securities;
- and
- acquiring a hedge portfolio comprising the revised selection of securities according to amounts defined by the hedge ratio.
A system for providing an optimal hedge portfolio, the system comprising:
- a processor;
- and
- computer-readable instructions that program the processor to:
- receive an optimal hedge portfolio creation request;
- identify a relevant investing sector and investing style;
- receive a requested level of transactional costs;
- derive a selection of securities associated with the identified investing sector and investing style representing a maximum achievable effective n for the requested level of transactional costs;
- revise the selection of securities by removing securities having transaction costs that exceed a threshold;
- receive an investment portfolio;
- determine a hedge ratio by comparing the investment portfolio to the revised selection of securities;
- and
- acquire a hedge portfolio comprising the revised selection of securities according to amounts defined by the hedge ratio.
A non-transitory computer-readable medium for providing an optimal hedge portfolio, the computer readable medium having computer readable instructions stored thereon which, when executed by one or more processors, configure the one or more processors for:
- receiving an optimal hedge portfolio creation request;
- identifying a relevant investing sector and investing style;
- receiving a requested level of transactional costs;
- deriving a selection of securities associated with the identified investing sector and investing style representing a maximum achievable effective n for the requested level of transactional costs;
- revising the selection of securities by removing securities having transaction costs that exceed a threshold;
- receiving an investment portfolio;
- determining a hedge ratio by comparing the investment portfolio to the revised selection of securities;
- and
- acquiring a hedge portfolio comprising the revised selection of securities according to amounts defined by the hedge ratio.
Dependencies are inferred from the claim text.