FINCAD XL and Analytics v11.1
FINCAD XL and Analytics v11.1 Software Version: FINCAD XL 11.1 Release Date: Feb 27, 2008 Document Revision Number: 1.0
Disclaimer FINCAD makes no warranty either express or implied, including, but not limited to, any implied warranties of merchantability or fitness for a particular purpose regarding these materials, and makes such materials available solely on a as-is basis. In no event shall FINCAD be liable to anyone for special, collateral, incidental, or consequential damages in connection with or arising out of purchase or use of these materials. This information is subject to change without notice. FINCAD assumes no responsibility for any errors in this document or their consequences, and reserves the right to make improvements and changes to this document without notice. Copyright Copyright FINCAD 2008. All rights reserved. Trademarks FinancialCAD and FINCAD are registered trademarks of FINCAD. Other trademarks are the property of their respective holders. FINCAD makes no warranties, express or implied, in this summary. Revisions Every effort has been made to ensure the accuracy of this document. FINCAD regrets any errors and omissions that may occur and would appreciate being informed of any errors found. FINCAD will correct any such errors and omissions in a subsequent version, as feasible. Please contact us at: Or FINCAD Central City, Suite 1750 13450 102 nd Avenue Surrey, BC V3T 5X3 Canada Block 4, Blackrock Business Park Carysfort Avenue, Blackrock Co Dublin, Ireland www.fincad.com Document Information Document Name: FINCAD XL v11.1 Revision: Feb 25, 2008
FINCAD XL and Analytics v11.1 CORRECTIONS FOR: 1. Analytics Changes... 1 1.1 Interest Rate Derivatives... 1 1.2 Fixed Income... 3 1.3 Credit... 6 1.4 Options... 8 1.5 Utilities... 10 2. Documentation Changes... 11 3. Usability Changes... 12 4. Workbooks... 13 4.1 New Workbooks... 13 4.2 Workbook Changes... 14
1. Analytics Changes 1.1 Interest Rate Derivatives Function aafrn_arrears_dgen_cf aafrn_cm_cf aafrn_cm_dgen_cf aafrn_cm_dgen_iv aafrn_cm_dgen_p aafrn_cm_dgen_tables aafrn_cm_iv aafrn_cm_p aafrn_arrears_dgen_p aafrn_arrears_dgen_tables aafrn_arrears_dgen_iv aacallrangeaccnote_cms_fs_p and aarangeaccnote_cms_fs_p aacaplet_cm_bl aaflleg_bpvt aafrn_cm_dgen_* aafrn2_dgen aafrn2_dgen_cf aafrn3_dm_p aaswap_brl aaswap_cf aaswap_crv* aaswaption_normal Functions were generating incorrect coupon dates due to adjustments to the given effective date. This has been fixed. Error handling of the tables for these functions was enhanced. The paste example was updated to output useful values. Function produced different results between FINCAD XL and Developer. This has been fixed. The business day convention labels were updated to provide more information. The function now outputs the correct number of days of accrual interest in the case where there are odd dates. The function was not picking up the right resets in the case of a long last stub period and annual cashflows. This has been fixed. Improved error handling for the fixed reset table. Improved error handling on the input curve to ensure it is long enough for the given maturity date. A typo is corrected in one of aaswap_cf's output selections. It now correctly states that the output is 11 columns. - Swap curves can now be built with rates less than -5%. - The error handling was improved for restrictions violated in the input tables. Math reference attached to the function was incorrectly titled. The document has been renamed to 'European FINCAD XL v11.1 Copyright 2008 1
Swaptions.' aaswaption2_dgen The function was fixed to output the correct accrued interest in cases where the swaption was compounding. FINCAD XL v11.1 Copyright 2008 2
1.2 Fixed Income Function aabond_au_index_p aabond_au_p aabond_convfactor aabond_crv* aabond_crvit aabond_es_* aabond_index_p aabond_index_y aabond_it_* aabond_it_yields_p aabond_sa_index_*, aabond_au_index_*, and aabond_tbl_index_* aabond_se_index_cf aabond_tbl_y Improved error handling for the holiday list input. Special yield and business day conventions were implemented for the second to last ex-dividend date prior to maturity. The function now uses the ex-dividend date in periods other than the first odd period when calculating the conversion factor for the LIFFE (Long gilt) type of bond futures. Function sometimes allowed for the same dates to appear in the output curve. The function's error handling has been improved on the input tables and we now sort the input tables internally by maturity date. Redemption value was being rounded. This has been fixed. The end of month rule was not consistently applied across this class of functions. The functions have been updated. When the calculation type is "Brazilian IL bond", risk stats are now calculated from real yield. - Labels have been changed on price, interest decimal places, projected principal decimal places, and real accrued interest decimal places to indicate that these inputs are per 100 par. - The function would fail for certain combinations of yield and price type. This has been fixed. Accrued Interest for Italian Treasury Bonds (BTPs) was updated to round to the fifth decimal place per 100 par. A memory leak in the function caused the function to #VALUE after consecutive calculations. This has been fixed. The calculation of duration and convexity is now calculated analytically rather than by bumping the inputs. The function will now return zero for the next coupon payment interest if settle date is within the ex-dividend period. The function was not able to correctly calculate the ex- FINCAD XL v11.1 Copyright 2008 3
dividend date when no holiday list was provided. This has been fixed. aabond_uk_index_3mlag_* aabond_uk_index_3mlag_y aabond2_strip & aabond3_strip aabond3_dgen* aabond3_dgen_y aabond3_dgen_y & aabond_index_y aabond4_accrued aabond4_p, aabond2_dgen_p aabond_it_index_p aacallbond_bk - The calculation of duration and convexity is now calculated analytically rather than by bumping the inputs. - The risk statistics for the UK 3-month lag index-linked bonds are now based on the nominal cash-flows rather than the real cash-flows. - The function would #VALUE when the settlement date is just within 3-month indexation lag. This has been fixed. - Internal testing found that the generic inflation bond functions calculated accrued interest was different than what was outputted for these function when using business day adjustments. This issue has been fixed. Inconsistent restrictions between the two functions for the dated date parameter. The restriction that required dated date to be less than settlement/valuation date has been removed. - In the case of a forward starting US municipal bond, the function would incorrectly include the period between the settle date and dated date. This has been fixed. - The function would not adjust the dates properly when using day count based cash flows. This has been fixed. The calculation of yield did not work properly for Japanese bonds due to an internal assumption that the notional is 100. This has been fixed. The calculation speed has been increased when using bus/252 and a large holiday list. - The 30/360 (SIA) method was not calculating accrued interest properly when a long front stub period was present. This was due to a special rule. Accrued interest calculations now value odd coupon periods properly with respect to the frequency. - Accrued interest calculation for the actual/365l accrual method was incorrect. This has been fixed. For the accrual methods bus/252, actual/365l, and NL/365 the functions were calculating the first period incorrectly due to an end-of-month setting. This has been fixed. Testing revealed that the wrong yield was being used in the last period. It has been updated to use a simple yield in the last period. The paste example was not working correctly. This has FINCAD XL v11.1 Copyright 2008 4
been corrected. aambs1_frm_curve_speed MBS Functions The root finding method used in the function has been enhanced. A note was added to the functions explaining that the input tables require adjusted dates. FINCAD XL v11.1 Copyright 2008 5
1.3 Credit Function aacds aacds_bin aacds_bin_opt aacds_bin_opt_iv aacds_bskt aacds_bskt_bin aacds_bskt_bin_opt aacds_bskt_bin_opt_iv aacds_bskt_bin_opt_risk aacds_bskt_bin_risk aacds_bskt_is aacds_bskt_opt aacds_bskt_opt_iv aacds_bskt_opt_risk aacds_bskt_risk aacds_bskt_std aacds_bskt_std_is aacds_bskt_std_opt aacds_bskt_std_opt_iv aacds_bskt_std_opt_risk aacds_bskt_std_risk aacds_cf aacds_is aacds_opt aacds_opt_iv aacds_std aacds2_bskt_prem_cf aacdo_tranche_cf aacds aacds_bskt_if aacds_if aacds_st_ds2_std_base_ic aacds-bskt_* aacredit_ds_tranche_std Restriction on having only positive upfront payments has been removed. The upfront payment can now be negative or positive. The outputted labels for the function were updated for the paste example. Problem in the default curve input that lead to a memory issue. This has been fixed and we have improved error handling. Improved error handling for the reference basket table. Improved error handling for the default curve parameter table. The function would #VALUE when the par spread was negative due to a large upfront fee. This has been fixed. The calculation of the first-n-defaults was incorrect and therefore it has been fixed. - The description for the function was updated as it made reference to pricing a first loss instrument which it does not. FINCAD XL v11.1 Copyright 2008 6
- Function outputted a negative par spread when the trade position was set to sell protection. It now outputs a positive spread. aacredit_dswap_bskt_rnk_bin_ind aacredit_tr_p_prob2 aatrs_eqty aatrs_eqty_for Statistic 12 was failing when using a flat rate for a discount curve. This has been fixed. The function did not work in v11 due to a memory management issue. This has been fixed. In the case that the non-tr leg is a floating rate note, the function now properly handles odd first and/or last coupon dates. There was an issue with memory usage. This has been fixed. FINCAD XL v11.1 Copyright 2008 7
1.4 Options Function aabarrier_am aafx_barrier_am aaquanto_barrier_am aabarrier_out_part aabarrier_dbl_mix_part aabarrier_dbl_mix_dis aabarrier_in_part aabarrier_dbl_in_part aabarrier_dbl_mx_part aabarrier_dbl_in_part_2win aabarrier_eu aabasket_mc aabin_*_iv aabin_curve_dcf aabin_curve_strike_dcf aabsdcf_iu aabsgdcf aacompound aafx_binary_bar_hit_cash aaoption_smile*, aaoption_lv_smile* aaspreadopt aaportfolio_opt Descriptions of probability of breaching barrier statistic modified to include whether early exercise is considered or not. The parameters for holidays and business day rule were not being used in the valuation of the instrument. This has been fixed. The Greek calculation was changed to now calculate using an analytical closed form solution. - Function restrictions were updated to allow for the strike price to be equal to zero. - The function restrictions were changed to allow for a short position to be considered. Function will now output a #VALUE rather than an incorrect implied volatility when the price is outside of the range. Improved the equations and updated the dividends section in the Math Reference. The function was not correctly ignoring entries after the maturity date in the strike table. This has been fixed. Entering large dividend amounts resulted in the outputted value being incorrect. The error handling has been improved to catch these cases. Error handling was improved for the dividend table. There was an issue with the solver routine that led to a #VALUE in extreme cases. This has been corrected. The paste example was updated to output useful values. The smile_tbl format "strike vs price" was not working. This has been fixed. The delta calculation was changed. They are now calculated using the centre difference. The bump size is modified to 1% of underlyings. The number of allowable time steps has been increased FINCAD XL v11.1 Copyright 2008 8
from 200 to 1000. aawarrant_am_curve_strike_dcf_iv aaworst_of_all_mc Function will now output a #VALUE rather than an incorrect implied volatility when the price is outside of the range. Math reference updated to include more details on the function. FINCAD XL v11.1 Copyright 2008 9
1.5 Utilities Function aaaccrual_factor2 aaconvertdf_r aacorr_mat_h aadategen3 aadfcurve_extend aaytm3, aaytm3_irr Error handling was improved for this function. The discount factor input in aaconvertdf_r is no longer limited to be less than or equal to 2. Improved error handling for the price table value date and the number of prices to be used in calculation inputs. Our date generation function (and cashflow functions that use this function) has been modified to always use the last coupon date if given - even if this last coupon date is on cycle with the maturity date. This change will sometimes have an affect when using the end of month rule. Since dates will now always be cycled off of the last coupon date when given, differences will be seen if the maturity date and last coupon date are on different days of the month. If there were increasing discount factors, the function would change the outputted values. This has been fixed. The functions YTM3 and YTM3irr have been enhanced to give correct results when using the actual/actual ISMA-99 accrual method. FINCAD XL v11.1 Copyright 2008 10
2. Documentation Changes Function aadategen3, aadategen_credit Math Math aavolatilityswap_p aamin_opt_mc, aamax_opt_mc aaswaption_normal aabin_curve_dcf aabin_ed_fut and aabin_ed_fut_iv aaswaption2_dgen aaspreadopt aaworst_of_all_mc aaswap_cf Glossary of Terms The paste examples for aadategen3 and aadategen_credit now output a two column table of dates. In the variance swap Math Reference, there was an error in equation 11. It now reads f(s_t) = 2/T * ((ST-S*)/S* - log(st/s*)). The math document was updated with more information regarding the 'standard' calculation setting. Function description was updated to read "Calculates the fair value and risk statistics of a volatility swap at or after its inception, given the realized volatility and the implied volatility." The math document and notes to the function were updated with more details regarding restrictions on the correlation matrix input. Math reference attached to the function was incorrectly titled. The document has been renamed to 'European Swaptions.' Improved the equations and updated the dividends section in the Math Reference. The functions now point to the correct math reference. The math reference was updated to include information on exchange of principal. The math reference for spread options was updated to include more information. Math reference updated to include more details on the function. A typo is corrected in one of aaswap_cf's output selections. It now correctly states that the output is 11 columns. The glossary has been updated for v11.1. It can be accessed by going to FINCAD XL -> Documentation. FINCAD XL v11.1 Copyright 2008 11
3. Usability Changes Function License check aacallbond_dgen_p aaswap3_p aabondport_cf aacaplet_cm_bl aadategen3, aadategen_credit aafx_binary_bar_hit_cash To improve performance, FINCAD XL will check for a valid license at startup and once during a twenty four hour period. Previously license checks were done based on the number of function calls. Issue with pasting an example of the function which caused Excel to shut down. This has been fixed. The output array was not correct when selecting output 7 or 8. It required the use of the Excel function TRANSPOSE to work correctly. This has been fixed. Two updates were made. The user can now paste all table types from the Function Finder and the outputs have clearer labels. The paste example was updated to output useful values. The paste examples for aadategen3 and aadategen_credit now output a two column table of dates. The paste example was updated to output useful values. FINCAD XL v11.1 Copyright 2008 12
4. Workbooks 4.1 New Workbooks Workbook v11.1 - Muni Swap Portfolio workbook Base Correlation Mapping workbook A new workbook for v11.1. This workbook calculates the fair value and other statistics for a portfolio of muni swaps. A new workbook for v11.1 which map benchmark base correlations to bespoke base correlations given CDS spread curves. FINCAD XL v11.1 Copyright 2008 13
4.2 Workbook Changes Workbook Single Asset CDS Option The workbook pointed to the wrong math reference. This has been fixed. Workbooks (User Data) -> Swaps -> Vanilla Interest Rate Swap - added a 2nd reset rate input at C35 - added a active reset table (hidden in B38:F41) and used in aaswap4_* Swap workbooks (vanilla and portfolio) Asian Option 1. Workbooks (User Data) -> Credit Derivatives (CDS) -> CDS on Synthetic CDO Tranches 2. Workbooks (Bloomberg Data) - > Portfolios -> CDS on Synthetic CDO Tranches (BLP(R)) Muni Swap workbooks Cap or Floor (CMS Spread) workbook Muni Swap (Amortizing Basis) Muni Swap (Amortizing) Bond Options Workbooks (User Data) -> Swaps -> Vanilla Interest Rate Swap Portfolio, and Workbooks (Bloomberg Data) -> Portfolios -> Vanilla Interest Rate Swap Portfolio - added a 2nd reset rate input in col Z - updated workbooks w/ aaswap_port_* The message "no input needed" was located in an incorrect cell. This has been fixed. A note detailing how the upfront fee is used by the function was added to the fair value output. The par swap rate calculation in the following workbooks was referencing an incorrect cell. This has been fixed. - Muni Swap (Amortizing) -> 'Amortizing Swap' worksheet - Muni Swap -> Main worksheet - Muni Swap Portfolio -> 'Details & CFs' worksheet The following changes were made to the workbook: - added two reset rate inputs at C38 & C39. These rates are used in cams table (col TZU) when there is an active period - fixed notionals in CMS table (col X). The condition to check if effective date < value date has been removed. In the workbook, the LIBOR basis leg was using an incorrect function. It has been replaced with aafrn2_fs. The function used to generate the floating leg information was incorrect. It has been replaced with aafrnavg_tables. The workbook was incorrectly using the clean forward price to calculate the option value. It has been changed FINCAD XL v11.1 Copyright 2008 14
to use the dirty price. CDO Notes - Tranche Linked Notes Value at Risk (VaR) Bond Portfolio workbook linked to Bloomberg Single Asset CDS workbook Callable Range Accrual workbook Bloomberg workbooks Bond Curve & Swap Curve (BLP(R)) Bond Curve (BLP(R)) Swap Curve (BLP(R)) Swap Curve (two curves) (BLP(R)) Renamed workbook from "CDO Notes - Tranche Linked Notes" to "Tranche Linked Note (Monte Carlo)" Added comments for the volatility input in the VAR workbooks that it is the daily volatility multiplied by 1.65 Bloomberg links are added to the 'bond portfolio' worksheet allowing users to download bond data from Bloomberg given ISIN/CUSIP. The "CDS (Single Asset)" workbook now uses aacds_cf to calculate cash flows. Therefore, the sum of the payoff and premium legs on the 'Cash flows' worksheets will match the main page for all date generation methods. Added a note to the reset rate input explaining that the rate is used to determine the accrued interest on the bond. General cleanup of all workbooks under the Bloomberg data section. Updated "Calibration (BK & HW - using Swaptions) (BLP(R))" workbook with aacalibrateswaptions_* - updated the "use point?" columns of data tables in curve worksheet to automatically choose between YES or NO depends on the availability of data - a "rate type" switch is added in the deposit rates section of the curve worksheet. FINCAD XL v11.1 Copyright 2008 15