Auto-Deleveraging
Full ADL
Full ADL is triggered if and only if the following two conditions are simultaneously met:
M M > 0 , E q u i t y ∗ ≤ 0 MM > 0, Equity^* \leq 0 MM > 0 , Eq u i t y ∗ ≤ 0 The residual Equity calculated based on the ADLTrigPrice is negative.
Partial ADL
Partial ADL is triggered if and only if the following two conditions are simultaneously met:
M M E q u i t y ∗ > 100 % \frac{MM}{Equity^*} > 100\% Eq u i t y ∗ MM > 100% The residual Equity calculated based on the ADLTrigPrice is negative.
ADLTrigPrice
ADLTrigPrice is used for position risk calculation and represents the price at which a position takeover would cause a counterparty's position to fall below zero equity.
F u t u r e A D L T r i g P r i c e = { F u t u r e S m o o t h M a r k P r i c e t T ⋅ ( 1 − A D L L o n g F u t u r e S h o c k ) , Q t y > 0 F u t u r e S m o o t h M a r k P r i c e t T ⋅ ( 1 + A D L S h o r t F u t u r e S h o c k ) , Q t y < 0 FutureADLTrigPrice =
\begin{cases}
FutureSmoothMarkPrice^T_t \cdot (1 - ADLLongFutureShock), Qty > 0 \\[5pt]
FutureSmoothMarkPrice^T_t \cdot (1 + ADLShortFutureShock), Qty < 0
\end{cases} F u t u re A D L T r i g P r i ce = ⎩ ⎨ ⎧ F u t u re S m oo t h M a r k P r i c e t T ⋅ ( 1 − A D LL o n g F u t u re S h oc k ) , Qt y > 0 F u t u re S m oo t h M a r k P r i c e t T ⋅ ( 1 + A D L S h or tF u t u re S h oc k ) , Qt y < 0 C a l l A D L T r i g P r i c e = { V ( F u t u r e S m o o t h M a r k P r i c e t T ⋅ ( 1 − A D L L o n g F u t u r e S h o c k ) , I V ⋅ ( 1 − A D L L o n g I V S h o c k ) , T , t , K , r , c a l l ) , Q t y > 0 V ( F u t u r e S m o o t h M a r k P r i c e t T ⋅ ( 1 + A D L S h o r t F u t u r e S h o c k ) , I V ⋅ ( 1 + A D L S h o r t I V S h o c k ) , T , t , K , r , c a l l ) , Q t y < 0 CallADLTrigPrice =
\begin{cases}
V(FutureSmoothMarkPrice^T_t \cdot (1 - ADLLongFutureShock), IV \cdot (1 - ADLLongIVShock), T, t, K, r, call), Qty > 0 \\[5pt]
V(FutureSmoothMarkPrice^T_t \cdot (1 + ADLShortFutureShock), IV \cdot (1 + ADLShortIVShock), T, t, K, r, call), Qty < 0
\end{cases} C a ll A D L T r i g P r i ce = ⎩ ⎨ ⎧ V ( F u t u re S m oo t h M a r k P r i c e t T ⋅ ( 1 − A D LL o n g F u t u re S h oc k ) , I V ⋅ ( 1 − A D LL o n g I V S h oc k ) , T , t , K , r , c a ll ) , Qt y > 0 V ( F u t u re S m oo t h M a r k P r i c e t T ⋅ ( 1 + A D L S h or tF u t u re S h oc k ) , I V ⋅ ( 1 + A D L S h or t I V S h oc k ) , T , t , K , r , c a ll ) , Qt y < 0 P u t A D L T r i g P r i c e = { V ( F u t u r e S m o o t h M a r k P r i c e t T ⋅ ( 1 + A D L L o n g F u t u r e S h o c k ) , I V ⋅ ( 1 − A D L L o n g I V S h o c k ) , T , t , K , r , p u t ) , Q t y > 0 V ( F u t u r e S m o o t h M a r k P r i c e t T ⋅ ( 1 − A D L S h o r t F u t u r e S h o c k ) , I V ⋅ ( 1 + A D L S h o r t I V S h o c k ) , T , t , K , r , p u t ) , Q t y < 0 PutADLTrigPrice =
\begin{cases}
V(FutureSmoothMarkPrice^T_t \cdot (1 + ADLLongFutureShock),IV \cdot (1 - ADLLongIVShock), T, t, K, r, put), Qty > 0 \\[5pt]
V(FutureSmoothMarkPrice^T_t \cdot (1 - ADLShortFutureShock), IV \cdot (1 + ADLShortIVShock), T, t, K, r, put), Qty < 0
\end{cases} P u t A D L T r i g P r i ce = ⎩ ⎨ ⎧ V ( F u t u re S m oo t h M a r k P r i c e t T ⋅ ( 1 + A D LL o n g F u t u re S h oc k ) , I V ⋅ ( 1 − A D LL o n g I V S h oc k ) , T , t , K , r , p u t ) , Qt y > 0 V ( F u t u re S m oo t h M a r k P r i c e t T ⋅ ( 1 − A D L S h or tF u t u re S h oc k ) , I V ⋅ ( 1 + A D L S h or t I V S h oc k ) , T , t , K , r , p u t ) , Qt y < 0 ADL Price
ADL price is the actual execution price for ADL.
Full ADL
Using the LiquidatingPrice at the trigger moment as a baseline, the ADL price is calculated as:
F u t u r e A D L P r i c e = F u t u r e L i q u i d a t i n g P r i c e − F u t u r e L o a d W e i g h t ⋅ min ( R e s i d u a l E q u i t y , 0 ) F u t u r e Q t y FutureADLPrice = FutureLiquidatingPrice - \frac{FutureLoadWeight \cdot\min(ResidualEquity, 0)}{FutureQty} F u t u re A D L P r i ce = F u t u re L i q u i d a t in g P r i ce − F u t u re Qt y F u t u re L o a d W e i g h t ⋅ min ( R es i d u a lEq u i t y , 0 ) O p t i o n A D L P r i c e = O p t i o n L i q u i d a t i n g P r i c e − O p t i o n L o a d W e i g h t ⋅ min ( R e s i d u a l E q u i t y , 0 ) O p t i o n Q t y OptionADLPrice = OptionLiquidatingPrice - \frac{OptionLoadWeight \cdot\min(ResidualEquity, 0)}{OptionQty} Opt i o n A D L P r i ce = Opt i o n L i q u i d a t in g P r i ce − Opt i o n Qt y Opt i o n L o a d W e i g h t ⋅ min ( R es i d u a lEq u i t y , 0 ) Where:
F u t u r e L o a d W e i g h t = ∣ ( F u t u r e L i q u i d a t i n g P r i c e − F u t u r e O p e n P r i c e ) ⋅ F u t u r e Q t y ∣ T o t a l A b s V a l u e FutureLoadWeight = \frac{\left| (FutureLiquidatingPrice - FutureOpenPrice) \cdot FutureQty \right|}{TotalAbsValue} F u t u re L o a d W e i g h t = T o t a l A b s Va l u e ∣ ( F u t u re L i q u i d a t in g P r i ce − F u t u re Op e n P r i ce ) ⋅ F u t u re Qt y ∣ O p t i o n L o a d W e i g h t = ∣ O p t i o n L i q u i d a t i n g P r i c e ⋅ O p t i o n Q t y ∣ T o t a l A b s V a l u e OptionLoadWeight = \frac{\left| OptionLiquidatingPrice \cdot OptionQty \right|}{TotalAbsValue} Opt i o n L o a d W e i g h t = T o t a l A b s Va l u e ∣ Opt i o n L i q u i d a t in g P r i ce ⋅ Opt i o n Qt y ∣ T o t a l A b s V a l u e = ∑ L e g : i ∣ ( F u t u r e L i q u i d a t i n g P r i c e i − F u t u r e O p e n P r i c e i ) ⋅ F u t u r e Q t y i ∣ + ∑ L e g : i ∣ O p t i o n L i q u i d a t i n g P r i c e i ⋅ OptionQty i ∣ TotalAbsValue = \sum\limits_{Leg:i} \left| (FutureLiquidatingPrice_i - FutureOpenPrice_i) \cdot FutureQty_i \right| + \sum\limits_{Leg:i} \left| OptionLiquidatingPrice_i \cdot \text{OptionQty}_i \right| T o t a l A b s Va l u e = L e g : i ∑ ∣ ( F u t u re L i q u i d a t in g P r i c e i − F u t u re Op e n P r i c e i ) ⋅ F u t u re Qt y i ∣ + L e g : i ∑ ∣ Opt i o n L i q u i d a t in g P r i c e i ⋅ OptionQty i ∣ Partial ADL
Triggering Criteria
Counterparty Selection: The counterparty is chosen based on the counterparty ranking;
ADL Sequence: ADL performs sequentially, leg by leg;
Dynamic Adjustment: ADL price is recalculated after each leg closure based on the remaining legs in the strategy.
Counterparty Ranking
The counterparties are ranked based on LeveragePnL in descending order. The positions with the highest LeveragePnL are closed first until the initiating party's risk position is fully closed:
L e v e r a g e P n L = { U n r e a l i z e d P n L max ( 1 , E q u i t y − U n r e a l i z e d P n L ) ⋅ M M R a t i o sign ( U n r e a l i z e d P n L ) , M M R a t i o ≠ 0 U n r e a l i z e d P n L max ( 1 , E q u i t y − U n r e a l i z e d P n L ) , M M R a t i o = 0 LeveragePnL =
\begin{cases}
\frac{UnrealizedPnL}{\max(1, Equity - UnrealizedPnL)} \cdot MMRatio^{\operatorname{sign}(UnrealizedPnL)}, MMRatio \neq 0 \\[8pt]
\frac{UnrealizedPnL}{\max(1, Equity - UnrealizedPnL)}, MMRatio = 0
\end{cases} L e v er a g e P n L = ⎩ ⎨ ⎧ m a x ( 1 , Eq u i t y − U n re a l i ze d P n L ) U n re a l i ze d P n L ⋅ MMR a t i o sign ( U n re a l i ze d P n L ) , MMR a t i o = 0 m a x ( 1 , Eq u i t y − U n re a l i ze d P n L ) U n re a l i ze d P n L , MMR a t i o = 0 ADL Settlement
Futures: The initiating party closes with the counterparty at the ADL price;
Options: For long options holders, the initiating party sells to the counterparty at the ADL price. For short options, the counterparty sells to the initiating party at the ADL price.