Methods for Post Trade Allocation
Since 2008, clients have opted for separately managed accounts. This causes a problem for the industry since trades must be allocated fairly across many accounts in order to comply with industry wide regulation. Since large trades hardly take place at a single price, or at one-time, and because securities are not infinitely divisible, all allocation procedures in existence result in biases. In this case, the issue of (un)fairness causes problems for both clients and managers.
To alleviate these concerns, managers often go to great lengths trying to allocate trades. The only solution the industry has come up with is trial-and-error to randomize the allocation in the hope that the law of large numbers resolves the issue. However, there are several problems with this approach.
Our patented methodology is a fair, optimal and unbiased post trade allocation that provides a solution to this problem.
Ali Hirsa is Managing Partner at Sauma Capital, LLC. Previously he was a Partner and Head of Analytical Trading Strategy at Caspian Capital Management, LLC. Prior to joining Caspian, Ali worked in a variety of quant positions at Morgan Stanley, Banc of America Securities, and Prudential Securities. He is an Adjunct Professor of Financial Engineering at Columbia University since 2000 and also a Fellow at Courant Institute of New York University in the Mathematics of Finance Program since 2004. Ali is the author of Computational Methods in Finance, Chapman & Hall/CRC 2012 and the co-author of An Introduction to Mathematics of Financial Derivatives, Academic Press 2013 and is the editor of Journal of Investment Strategies. He has several publications and is a frequent speaker at academic and practitioner conferences. Ali is co-inventor of Methods for Post Trade Allocation (US Patent 8,799,146). Allocation of filled orders (post trade) on any security to multiple managed accounts has to be fair and unbiased. Current existing methods lead to biases, mostly against the smaller accounts. The invention provides a solution to this problem. Ali received his Ph.D. in Applied Mathematics from University of Maryland at College Park under the supervision of Professors Howard C. Elman and Dilip B. Madan. He currently serves as a Trustee at University of Maryland College Park Foundation.