PolyPaths also helps users manage interest-rate, volatility and credit-sensitive positions providing models and other analytic tools for use in the pricing and hedging of fixed income and derivative portfolios.
In addition, we supply a complete set of Greeks and other risk measures, as well as a flexible interface for compound and multi-horizon scenario analysis at the portfolio, sector, and individual security level.
PolyPaths uses a 3-factor BGM interest-rate process (LIBOR Market Model), which features:
- Simultaneous calibration to a complete set of caps and swaptions volatility term structures
- Fast calibration, which can be done in real time within 30 seconds
- CEV adjustment on a continuous scale from lognormal to near normal for approximating the observed volatility skew
- A volatility-dependent current coupon model
PolyPaths integrates cash flow model and default assumptions from clients, Intex and third-party providers – Andrew Davidson & Co. and Black Knight AFT.
Bonds and Derivatives
- Lognormal Trinomial Tree
- Square root Trinomial Tree
- Normal Trinomial Tree
- Monte-Carlo – Least Squares Implementation
Cap/Floors, European Swaption
- Monte Carlo
PolyPaths makes specific risk measures available at the portfolio, user-defined sector and security level:
- Static: Price, yield, various cash flow and yield spreads to UST and LIBOR curves (I/J/E/N/Z spreads are available), modified duration, treasury/swap equivalents.
- Option Adjusted:OAS, OA duration, OA convexity, current coupon duration, OA spread duration, volatility duration, prepay duration, user-modified OA duration, option Greeks, treasury/swap equivalents.
- Key Rate Duration: Sensitivity to user-selected points on the curve.
- Value at Risk: Full-valuation or sensitivity-based value at risk based on historical market changes and user-selected confidence intervals and time periods.
- Floating Rate Sensitivity: Index Duration, Discount margin, uncapped discount margin, and embedded Cap Cost measures for floating-rate securities.
- User-Defined Duration: Measures which capture price sensitivity with respect to a customized curve shock.
- Prepay/Loss Model Equivalents: Projected and historical prepayment speed equivalents; model vs. actual speed ratios.
- Performance Attribution: attribute a change in price between two pricing dates to various factors, including time value, rate level, mortgage spread, volatility, and OAS changes.
- Credit OAS: credit- and option-adjusted spread based on a distribution of loss scenarios.
- Curve shifts parallel, steepening, flattening, and twists
- Multi-horizon shifts
- Current coupon shifts
- Prepayment, default and loss severity multipliers
- Volatility shifts
- Basis/spread scenario at security or sector level
- Exchange Rates
- Shifts can be applied to Govt., LIBOR and user-defined funding curves.
- Scenarios can be defined in terms of basis point changes or as absolute yield forecasts for CCAR-Type stress scenarios.