BondOAS™ Software Library

High Precision Analytics for Fixed Coupon Bonds

BondOAS™ is a rigorously developed, thoroughly tested valuation engine for the universe of fixed coupon bonds. These can be step-up coupons, callable, putable, amortizing, and pre-refunded securities. BondOAS™ uses a proprietary tetranomial lattice model employing the Black-Karasinski interest rate process and a recursive valuation procedure.

The library contains a suite of internally consistent analytical routines, the primary ones being arbitrage-free valuation, conventional price/yield calculation, and scenario analysis.

BondOAS™ runs on Windows and Solaris platforms. Its speed and accuracy makes it ideal for interactive applications or high volume batch processing. BondOAS™ has been widely implemented, primarily in trading, index calculation, and risk management systems. Its users include major investment banks along with global financial information services.

Coverage

  • US agency bonds
  • US investment grade corporate bonds
  • US municipal bonds
  • US Treasury notes and bonds
  • Foreign sovereigns
  • Foreign investment grade corporate bonds

Valuation

  • Option Adjusted Spread (OAS) corresponding to a price
  • Fair value given OAS
  • Effective duration convexity, DV01
  • Key-rate durations

Conventional Bond Calculations

  • Price/yield conversion for standard daycounts
    (Yields: YTM, YTC, YTP, YTW, CFY)
  • Accrued interest for standard daycounts
  • Modified duration, convexity, DV01
  • Cashflows

Scenario Analysis And Stress Testing

  • Total return over specified holding period and interest rate scenario
  • Scenario-dependent calls and puts

Yield Curve Analysis

  • Volatility term structure
  • Discount factors, zero coupon rates and forward rates corresponding to a par yield curve

Applications

  • Real-time pricing
  • End-of-day-marking to market
  • Risk management
  • Index calculation
  • Web-based services
  • Trading systems

Performance (2.0 GHz Pentium 4)

  • Bond valuations per minute, using a single lattice:
    Fair values given OAS: 45,000
    OAS given price: 26,000
  • Bond valuations per minute, using discount factors:
    Fair values given OAS: 220,000
    OAS given price: 130,000

Methodology

  • Arbitrage-free valuation
  • Black-Karasinski process with user-specified short-term interest rate volatility and mean reversion
  • Proprietary tetranomial lattice implementation

Distinguishing Features

  • Valuation of interrelated call, acceleration and delivery options on a sinking fund bond
  • Call and put options optimally exercised during holding period in scenario analysis
  • Numerical pitfalls avoided in lattice-based calculation of risk measures.

Technical Specifications

  • Written in C
  • Supports Windows and Solaris
  • Multi-thread safe
  • Distributions:
    DLL: Windows
    Libraries: Windows, Linux, and Solaris
    Executables: Windows, Linux, and Solaris
  • Easily integrated with Java, C++, Visual Basic, and Web applications
  • Documented API