Basic bond calculations
The RIO systems enables the user to calculate cash flow and key figures on a wide array of bonds. The calculations are performed on basis of the RIO database containing the background information of the bonds. A calculation can be performed simply by specifying an asset ID and a trade date. For extended analysis all background data as well as calculation settings can be modified directly from the RIO application.
Yield curve estimation
The yield curve estimation function enables the user to estimate and validate yield curves. The estimation is performed directly from a customized sample of assets as governments bonds, swaps, FRA's etc. Market quotes are drawn from RIO database, but can be specified directly as well.
Yield curve specifications include bootstrap, extended Nelson Siegel, CIR, and a range of different smoothing splines. The estimated yield curves are saved in the RIO database and are available for pricing assets throughout the rest of the system.
One-factor term structure models
RIO primarily valuates Mortgage Backed bonds in an 1-factor term structure model setup. These models are calibrated to interest rates and volatility. The volatility is specified through market quotes of caps and swaptions, while the interest rates are represented by an yield curve. The resulting fit of the calibrated models can be validated directly in the calibration function.
Libor market models
The RIO Libor Market model allows for multi-factor term structure modelling within a Monte-Carlo simulation approach. The model is able to price a wide variety of fixed-income instruments including path-dependent and callable Libor market models.
Prepayment models
The prepayment models included in RIO are based on an extensive history of research and fine tuning to match the available market data. The basic model is based on a required gain model, where prepayment behavior is modelled by the borrowers gain by prepaying his loan. Borrowers are split into different loan groups exhibiting different prepayments. The prepayment model also features, burn out of high-prepay-series, delivery option, use of preliminary redemption data and many other customizable features.
ScanRate reestimates a selection of prepayment models on a quarterly basis under the ScanRate Prepayment and Valuation Service(SPV). For more information about SPV see SPV - Scanrate Prepayment and Valuation service
Danish mortgage backed bond analysis
Danish mortgage backed bonds including capped-floaters can be analyzed in an extensive function library. RIO calculates a long list of keyfigures ex. Option Adjusted Price, Option Adjusted Duration, Option Adjusted Convexity, Vega, Prepayment rates, OASRisk and many others. Calculations are based on an yield curve and a term structure model. The model input can be manipulated in almost every conceivable way. It is thus easy to calculate the consequence of various shocks to the yield curve.
Holding period yields
By setting up detailed scenarios about the development of yield curves and volatility, the HPY-functions calculate the return of holding a bond during a given period in the future. By using this function it is possible to forecast bond prices under a given set of circumstances and assumptions. This functionality is useful for bond selection under a expectation about the future market development.
Fixed Income Performance Attribution
On basis of the mortgage backed bonds modeling framework RIO provides a detailed Fixed Income Performance Attribution functionality. The historic return of bond portfolios may be decomposed into various return components, ex. Roll down, Coupon, Yield Curve changes, Volatility, Spread development, Exchange rates, etc.
Fixed Income Performance Attribution provides insight of the return generating components of different bond segments. Performance attribution is great for reporting and presentation purposes and for evaluating trading strategies.
Interest Rate Derivatives
The Interest Rate Derivatives modeling framework covers a wide selection of contracts ranging from vanilla swaps to customized cash flows embedded with exotic options. The same contract specification can be evaluated in four different model setups: Present Value model, one-factor term structure model, LIBOR Market model and a Black76 model. For an introduction to the swap functions see
Interest Rate Derivatives in RIO.
Mortgage loan
The most recent addition to the RIO system is the mortgage loan calculation library which covers the full range of mortgage loans products available in the Danish market. The library allows for scenario analysis based on consistent interest rate forecast across all product types. The library may be used for liability management as well as advisory services. For more information see
Låneberegninger i RIO.
Bond Futures
RIO includes the functionality to calculate forwards and futures on a basket of mortgage backed bonds. These products are complicated due to the publication of drawings during the forward period. A contract is based on a basket of bonds with individual weights. Each basket contains a cheapest-to-deliver option.