Equity Security Knowledge

  1. Commercial Mortgage Backed Securities

Commercial Mortgage Backed Securities (CMBS) are bonds backed by pools of mortgages on commercial and multifamily real estate. Securitization of these mortgages into a CMBS allows one to divide the loans into credit classes, where the investor may buy securities of various credit qualities.

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Github cmbs

2. Portfolio Exposure Risk

The model has significantly simplified the operation for producing valuation, VaR and stress-testing results, and the approximations made in the implementation of the crawl out calculation in the model currently appear reasonable.

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Zenodo portfolio exposure pdf

Github exposure

3. Expected Loss

The model is used to estimate the expected losses to their stable value wrap model, and which is also run repeatedly to perform stress tests.

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Zenodo expected loss pdf

Github loss

4. Parameter Estimation of Fee Process

The key question is whether the fee process is diffusive (as geometric Brownian motion) or confined to lie within a band around an average, which results from the mean-reverting process.

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Zenodo fee process pdf

Github fee

5. Credit Basket

The model is used to analyze the dynamics of a well diversified credit basket of names. More specifically, the tool is capable of predicting correlated loss levels and pool spreads over time. These forecasts can be used to further gauge the possibility of hitting predefined spread trigger thresholds.

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Zenodo credit basket pdf

Github credit basket

6. Conduit Administration Fees

Accounting requires the ability to forecast conduit administration fees. a simple stationary lognormal model for the fees is presented. Initially, the stationarity of the sweep fees is tested by measuring the level of mean reversion. Using a Dickey-Fuller statistical test the conduits are checked for approximate stationarity. Next, assuming the raw fee data is stationary, the proposed lognormal form of the model is investigated. A Jarque-Bera statistical test formalizes this step.

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Github conduit

7. Credit Default Simulator

The credit default simulator is based on a simplified version credit risk methodology, extended to multiple periods.  Beginning with a portfolio of assets, which are assumed to be in one-to-one correspondence with names, the model simulates a change in the value of the name for each period. 

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Zenodo credit default pdf

Github default

8. Stable Value Wrap Model

The Insurance and Pension Solutions Group (IPS) stable value fund wrap model is presented. The modeling approach is to be used for several two basic contract types involving stable value protection on Bank Owned Life Insurance funds (BOLI), and Company Owned Life Insurance funds (COLI).  These products are fundamentally the same but differ with respect to tax treatment and/or the specific details regarding the redemption of the funds or portions thereof.

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9. Bet Option

A pricing model for bet options is presented by using Monte Carlo simulation.  A bet option is a bet on a basket of stocks.  There are multiple reset periods before the maturity of the option.  At the end of each period, if all the stocks in the basket are above their respective strikes, the option will payout a rebate amount for this period at maturity.

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Github bet

10. Basket Asian Relative Performance Option

A pricing model for basket Asian relative performance options (RPO) is proposed byusing Monte Carlo simulation. In a basket Asian RPO, payoff is determined by the difference between the performance of a reference stock and that of a basket of stocks, where performance is defined as the ratio of (weighted) average of two sets of averaging dates.

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Github rpo

11. Bond Option

We present a pricing model for bond option. Assuming that the bond price at the maturity of the option is lognormal, the model adopts the Black’s analytical closed-form solution. both the underlying spot price of bond and the strike price are clean prices (quoted prices), while dirty prices are used in the price dynamic and the closed-form solution.

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Zenodo bond option pdf

Github bond

12. Bond Futures Option

We present a pricing model for bond futures option. Assuming that the bond futures price at the maturity of the option is lognormal, the model adopts the Black’s analytical closed-form solution.  The futures price is taken directly from the market instead of being calculated from the bond futures calculator.

Zenodo bond futures option

Zenodo bond futures option pdf

Github option

13. Callable Asian Option

We present a new model named callable Asian options.  Such options allow their underwriters to call the options back from investors at a specified time and with a specified amount prior to option maturities.  A hybrid of Monte Carlo simulation and the closed form Michael Curran’s solution is employed in pricing.

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Zenodo callable asian pdf

Github callable