International banks have margin trading business with counterparties. The banks receive hundreds of marginal calls from counterparties each day, and the banks have thousands types of collaterals (USD, CNY, bonds, notes, stocks, etc.). How to allocate/pledge different collaterals to different counterparties so as to minimize total cost of funding while satisfying all margin calls?
A collateral optimization solution was provided with a mixed integer programming model to achieve the banks’ need. The model can decide what collaterals and how much to pledge to each counterparty to meet all margin calls while minimizing total cost of funding, considering legal agreements with counterparties, limited collateral inventory, transaction restrictions and other business requirements.
Value from Optimization
Millions of US dollars are saved in the first year after the collateral optimization solution is used. Savings keep increasing along the years.