FINCAD XL and Analytics v10.1 Release Notes

FINCAD XL and Analytics v10.1 Release Notes

FINCAD XL and Analytics v10.1 Release Notes Software Version: FINCAD XL 10.1 Release Date: May 15, 2007 Document Revision Number: 1.0

Disclaimer FinancialCAD Corporation ( 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 FinancialCAD Corporation 2007. All rights reserved. Trademarks FinancialCAD and FINCAD are registered trademarks of FinancialCAD Corporation. Other trademarks are the property of their respective holders. FinancialCAD Corporation 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: FINCAD Central City, Suite 1750 13450 102 nd Avenue Surrey, BC V3T 5X3 Canada www.fincad.com Document Information Document Name: FINCAD XL v10.1 Release Notes Revision: May 9, 2007

FINCAD XL and Analytics v10.1 Release Notes CORRECTIONS FOR: Analytics algorithms... 1 Analytics specs... 5 Analytics no change made... 6 Workbooks... 7

Analytics algorithms aa*capfloat*, aa*invfloat* aaasian aabond_ca_cf For the reset table input, an unknown future reset rate is indicated by entering 0% in the table. If the reset date is set to the value date, then the function generated the reset rate off the discount factor curve but did not apply the cap/floor to this rate, resulting in an incorrect first coupon. This has been fixed. When "market days" was selected as the sampling frequency, the function would output an unusually large number. This has been fixed. aabond_ca_cf calculated an incorrect amount of interest for the first coupon payment when a bond is issued with a short first period. This has been fixed for all pertinent aabond_ca* functions. aabond_crv* aabond_fr* In aaswap_crv, aaswap_crv2, aaswap_crv3, aabond_crv1, and aabond_crv2 the method by which the discount factor on swap effective dates is calculated was changed; the functions now use the method specified by the interpolation method switch (boot_interp), rather than always using linear interpolation of discount factors. The rounding convention employed was resulting in an incorrect accrued interest. This has been fixed. aabond_jp_index_* The function was enhanced so that it no longer truncates the results. This allows the function to be called with a principal of $100 (par) and then the results can be scaled to the actual notional. This makes the function more flexible. aabond_uk* aabond*_yields aabond_uk_index* The following UK bond functions were behaving incorrectly on the exdividend date: aabond_uk_accrued2, aabond_uk_cf2, aabond_uk_p2, aabond_uk_y2, aabond_uk_yields2, aabond_uk_yields2_p. Usually the ex-dividend date is the day on which negative accrued interest is applied to the bonds, but for UK bonds, this "Next negative Accrued Interest date" is actually one day after the ex-dividend date. This has been fixed. The calculation of true yield for the bond functions was wrong in cases where the accrual method was Actual/Actual (ISMA- 99) and the maturity date falls on a weekend or holiday. This issue has been fixed. The functions aabond_uk_index_y2, aabond_uk_index_p2, and aabond_uk_index_cf2 we calculating incorrectly when valued on an ex-dividend date. This has been corrected. FINCAD XL v10.1 Release Notes Copyright 2007 1

aabond Functions were outputting the incorrect ex-dividend date. This has been fixed. Affected functions include: aabond3_accrued aabond3_cf aabond3_p aabond3_y aabond3_yields aabond4_accrued aabond4_cf aabond4_p aabond4_y aabond4_yields aabond_th_accrued aabond_th_cf aabond_th_p aabond_th_y aabond_th_yields aabond_au_accrued aabond_au_cf aabond_au_p aabond_au_y aabond_nz_accrued aabond_nz_cf aabond_nz_p aabond_nz_y aabond_nz_yields aabond_no_accrued aabond_no_cf aabond_no_p aabond_no_y aabond_no_yields aabond_se_accrued2 aabond_se_cf2 aabond_se_p2 aabond_se_y2 aabond_se_yields2 aabond_tbl_cf aabond_tbl_accrued aacdo_bond_cash* aacdo_st_basecorr_map aacdo_st_ds_risk aacdo_st_ds*_risk aacredit_ds In certain cases, principal payments should have been considered rather than interest payments, and the redemption amount was incorrect. This has been fixed. Moving from accuracy level 1 or 2 to 3 or 4 led to a large discrepancy in the outputs. This has been fixed. The function would generate an access violation error for random inputs. This has been fixed. The function was returning inconsistent results when the number of tranches was greater than the number of entities. This issue has been fixed. The value on default is now consistent when the number of tranches is greater than the number of entities. The function returned an error when outputing its statistic with certain uses of Excel's Transpose() function. This has been fixed. FINCAD XL v10.1 Release Notes Copyright 2007 2

aafixlg_fs_* The functions have been enhanced. The number of accrual methods available has been increased from 6 to 15. aafloatlg_cf The function was not adjusting the dates according to 30/360 properly, resulting in an error. This has been fixed. aafrnavg_fixfwds_fs* An effective duration statistic has been added at the end of the stat list in aafrnavg_fixfwds_fs_p and aafrnavg_fixfwds_fs_y. The associated math reference, FRNavg.doc, has been updated to reflect the changes. aambs2* For delays of 30 days or more, inconsistent pricing was produced when compared to quoted market prices. This has been rectified by updating the rules for such payment delays. This change applies to all aambs2* function except aambs2_pac_sched, aambs2_pac2_sched, aambs_tac_sched, and aambs_tac2_sched. aammkt_iam_y In cases where there were no accrual days (example: the dated date and value date in the same weekend or were the same date: no business days between them), the function would return an error. This has been fixed. aaoption_smile* aaoption_smile_eu_p The interpolation of implied volatilities from the smile_tbl input were being done erroneously. This has been fixed which also affects the results of aaoption_smile_eu_p, aaoption_smile_payoff_eu_p, and aaoption_smile_eu_tbl. When the "exercise price" in the smile table was equal for all rows AND the expiry date was not in the maturity list of the smile table, the function returned an error. This has been fixed. aaparswap* aaspreadopt aaswap_brl For aaparswap, aaparswap3, and aaparswap_fs, in certain instances of 30/360 where there is a 1 day period between effective and terminating date, results in a fixed leg with no cash flows. This resulted in a calculation overflow, but will now result in an error due to the division by 0. (Example: effective date is on the 30th of a month and ends on the 31st; under some of the 30/360 accrual methods, the 31st and the 30th are considered the same day thus representing a 0 length period). The function did not accept a correlation of 1. This has been fixed. The function did not output the correct par swap rate for forward starting deals. This has been fixed. aaswap_crv* In aaswap_crv, aaswap_crv2, aaswap_crv3, aabond_crv1, and aabond_crv2 the method by which the discount factor on swap effective dates is calculated was changed; the functions now use the method specified by the interpolation method switch (boot_interp), rather than always using linear interpolation of discount factors. FINCAD XL v10.1 Release Notes Copyright 2007 3

aaswap_crv2/3 There was an inconsistency of how the function extended the curve. This has been fixed to match the behavior of aadfcurve_extend. Adding an additional row to the par swap table caused the output to change even when the additional point was not selected to be used in building the curve. This has been fixed. When the curve is built using the cash and futures rates only and the user chooses to extend the curve, the function still used the par swap rates to extend the curve. This has been fixed. When using the extend feature the function would sometimes #VALUE or provide erroneous results for cases where the extension period was greater than or equal to the final date in the curve. This has been fixed. aatrs_eqty aatrs_eqty & aatrs_eqty_for The function was computing the dividends incorrectly. It was based on the total time rather than just the time that the swaps were active. This issue has been fixed. The functions no longer return an error when forward valuing using a floating rate. The function has been enhanced to compute the active reset dates which makes the routine easier to use. aatrs_eqty & aatrs_eqty_for The functions no longer use an incorrect accrual method when valuing dividend payments. This issue has been fixed. FINCAD XL v10.1 Release Notes Copyright 2007 4

Analytics specs aaaccrual_factor*, aaaccrual_days* aabin2dcf aaaccrual_days, aaaccrual_days_act252, aaaccrual_factor, and aaaccrual_factor_act252 now allow for the same effective and terminating dates, and output zero in this instance. A minor specification error was fixed. aacallbond2*, aacallbond3* Added note 659 describing how Bermudan exercise is interpreted. aacdo_bond* Moved all related functions to a new node in the Finder labeled "Cash CDOs". aacredit_dfltprob_dssprd3 The Function reference indicated that columns 4,5,6,7 are optional when only column 7 is optional. This has been fixed. aafrn3_dgen Note 241 has been replaced by a new note that makes it clear that the dates in the reset table need to be adjusted for weekends and holidays. This applies to the following functions: aafrn aafrn_cf aafrn2 aafrn2_cf aafrn2_dgen aafrn2_dgen_cf aafrn3 aafrn3_cf aafrn3_dgen aafrn3_dgen_cf. aaoption*_lv* The CEV option pricing model restricted alpha > 0. This has been lifted to allow for negative or zero values. aasimpleswapcrv Added a comment in the math reference and function reference to clarify an internal calculation method: "The bootstrapping method being used is constant implied forward rates, interpolate from discount factors." aatrs_eqty & aatrs_eqty_for The function reference pages for these routines have been enhanced. The notes are better worded and associated with the related inputs to make the page easier to read. aavar_rebase The default example generated using the C interface in the Function Finder returns an undiagnosed error code. The "Show Example" code has been updated so the function calculates. Function Finder For naming convention consistency, the "Bonds and Other Debt Instruments" node in the Function Finder has been replaced with reference to "Fixed Income" rather than "Bonds". FINCAD XL v10.1 Release Notes Copyright 2007 5

Analytics no change made aabarrier_eu A general question is why option functions cannot accept negative interest rates. As utilizing negative interest rates would almost never transpire, it would be dangerous to remove this restriction from these functions. However, the usr can always Disable Error Handling if they wish to use negative rates as only the high-level input validation catches this restriction. aabond_uk_index_y A general question is why FINCAD does not output the additional statistics for aabond_uk_index_y as are available in aabond_tbl_index_y. The reason the _tbl functions have a different stat list is because this list needs to be the same for all countries. FINCAD XL v10.1 Release Notes Copyright 2007 6

Workbooks *swap*.xlt The interest rate swap, currency swap, and muni swap workbooks have been standardized in terms of the label and ordering of outputs (mainly the price and accrued stats). Calibration* cap*.xlt Calibration (BK & HW - using Caplets) - renamed 'rate cap' and 'rate floor' to 'rate caplet' and 'rate floorlet' in 'calibration' worksheet - added aavol_crv2_rcap_bl to bootstrap cap data in 'calibration' worksheet Calibration (LMM - using Caps & Swaptions) - renamed 'rate cap' and 'rate floor' to 'rate caplet' and 'rate floorlet' in 'calibration caps' worksheet - renamed 'rate cap' and 'rate floor' to 'rate caplet' and 'rate floorlet' in 'cap vol data' worksheet. Callable Capped Floaters.xlt The exercise type switch only displayed Bermudan style when it should include American. This has been fixed. CDS (Single Asset) Portfolio (BLP(R)).xlt Bloomberg CDS spread data links have been added to this workbook. CDS (Single Asset)*.xlt Added 'implied cds spread' output in both "CDS (Single Asset) Portfolio w IMM dates.xlt" and "CDS (Single Asset).xlt" workbooks. CMS Spread*.xlt The CMS spread note and swap workbooks' calibration worksheets have been enhanced by bringing in other instruments (eg. CMS swaps) to verify the calibration (i.e. the CMS convexity adjustment). Commodity or Equity Swap.xlt The workbook was causing confusion as to the inputing of the correct contract (and month) into the correct cells; this has been made more explicit. ConvBond The two references to the curve were reversed where the risk free curve was not the equity curve and the bond curve curve was not referenced to the spread. This has been fixed. Freight Options.xlt A daily forward curve graph has been implemented in the "Fwd Curve Graph" worksheet. Muni *.xlt, Averaging Swap Curve.xlt All muni workbooks, including "Averaging Swap Curve.xlt", have been updated as follows: (1) the quadratric fwd bootstrapping method appears in the switch and is the default value, (2) a new switch enables the user to output the df curve as well as the fwd curve in various freq settings, and (3) a graph of the BMA versus LIBOR fwd curve has been added. FINCAD XL v10.1 Release Notes Copyright 2007 7

Portfolio Basis Point Value Analysis.xlt The implementation of bumps was previously done using aadfcurve_addspreads to bump the bootstrapped spot rate curve. However, the sum of the sensitivities to each point in the curve did not equal the sensitivity calculated when bumping all points at once. This has been fixed. Sensitivity analyses were added for all portfolios to compare the bumping of individual spot rates and raw rates with parallel shifts. Synthetic CDO workbook The workbook now uses the correct range for entities when the CDO type is standard and one of the entities has defaulted. Swap Curve (with spot rate shocks).xlt The implementation of bumps was previously done using aadfcurve_addspreads to bump the bootstrapped spot rate curve. However, the sum of the sensitivities to each point in the curve did not equal the sensitivity calculated when bumping all points at once. This has been fixed. The ability to bump the raw rates (on top of the spot rates) has been added. Swaption (European - Normal Model).xlt The workbook has been updated to use the newly created normal swaption function. FINCAD XL v10.1 Release Notes Copyright 2007 8