Sipos, Róbert
(Citi)
Trade compression as a linear
optimization problem
Trade compression is used
to reduce the number of contracts that banks have on their books, while keeping
the same economic exposure (present value, risks). The compression is carried
out by assigning weights to each deal (possibly fully unwinding it), as a
result, the profile of the portfolio is given as a linear combination of the
trade-wise exposures. This can be done both on a bilateral (within the firm
itself) and multilateral basis (across multiple firms), where a group of banks
agree to tear up offsetting contracts.
The most important benefits
of doing this is reducing gross notional exposure, which reduces the capital
needed to cover their Over The Counter (OTC) contracts
and also lowers operational costs and counterparty exposures.
Compression itself can be viewed as a linear optimization problem where
the set of boundary conditions is to keep the economic exposure constant. We
will review some of the approaches that can be found in the literature and
introduce an approach we implemented in production.
The talk is held in English!
Az előadás angol nyelven lesz megtartva!
Date: Oct 24, Tuesday 4:15pm
Place: BME, Building „Q”, Room QBF13