Exposure Management System for Variable Price Commodity Trading
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Solution Overview
Problem
Existing exposure management systems struggle to efficiently calculate and adjust variable or floating price exposures in sales and purchase orders, and lack an intuitive methodology to restructure atomic level exposures into aggregated positions needed for hedging, accounting, and legal requirements, especially in industries like metals, mining, and oil.
Innovation Solution
A service-oriented architecture (SOA) is used to send messages between systems with a commodity identifier, action, date, and price term, parsing pricing formulas to create sub raw exposure line items, regrouping them to calculate exposure positions, and applying mapping rules to update and restructure exposure positions based on changing circumstances.
Engineering Contradictions & Design Principles
Engineering Contradiction Analysis
1Adaptability or versatility
If existing exposure management systems calculate exposure on a fixed price basis, then the calculation is straightforward, but it becomes difficult and cumbersome to configure the system to efficiently account for variable or floating price exposures and adjust them as circumstances change
Solution Approach 1:
The patent segments the exposure calculation process into distinct components: atomic level exposure elements, pricing formulas, and aggregation rules. This segmentation allows the system to handle variable price exposures by processing them as discrete, manageable units that can be individually configured and then aggregated to meet different reporting and hedging requirements, thereby reducing overall system configuration complexity.
Solution Approach 2:
The system implements dynamic exposure calculation by allowing pricing formulas to be updated and re-applied as circumstances change. The exposure positions can be automatically adjusted when pricing formulas are modified, enabling the system to adapt to variable price exposures without requiring manual reconfiguration of the entire exposure management framework.
2Adaptability or versatility
If existing systems lack an intuitive methodology to analyze exposure information at an atomic level, then the system structure remains simple, but it becomes difficult to restructure price exposures into exposure positions satisfying hedging, accounting, and legal requirements
Solution Approach 1:
The patent introduces an atomic level representation of exposure information as the foundation for all subsequent analysis. By breaking down complex exposure positions into atomic elements, the system provides an intuitive methodology where users can clearly see and manipulate individual exposure components before aggregating them into positions that satisfy different requirements for hedging, accounting, and legal compliance.
Solution Approach 2:
The system adds a hierarchical dimension to exposure analysis by organizing data from the atomic level up through multiple aggregation levels. This dimensional structure allows users to navigate from detailed atomic exposures to aggregated positions, making the restructuring process more intuitive and enabling flexible configuration of exposure positions for different operational needs.
3Productivity
If the system calculates initial exposure quickly, then productivity is improved, but it becomes challenging to efficiently adjust exposure positions as circumstances change
Solution Approach 1:
The system performs preliminary calculation of atomic level exposures and establishes a framework of pricing formulas and aggregation rules in advance. When circumstances change and adjustments are needed, the system can quickly re-apply the pre-established framework to atomic elements rather than recalculating everything from scratch, thereby maintaining high productivity while enabling efficient adjustments to exposure positions.
Solution Approach 2:
The system implements feedback mechanisms that automatically detect changes in pricing formulas or underlying conditions and trigger updated calculations of exposure positions. This feedback loop allows the system to maintain accurate exposure information without requiring manual intervention, reducing the time needed to adjust positions while preserving calculation speed through automated re-computation based on updated atomic exposures.
Data Source
AI summary
A message may be used to update computing system of a commodity transaction. The message may include a commodity identifier, a date term, a quantity term, and a price term. The price term may include a formula arrangement or reference to a formula arrangement for calculating a fractional exposure of the entity to the commodity on each date in which an event affecting commodity transaction occurs. Each of these fractional exposures may be calculated for each commodity transaction and stored as separate entries in a data structure. The entries may then be updated, queried, and/or reorganized to generate an exposure position.