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HIMIPref™ User Manual
Index
User Data
Creating a Portfolio
Editing a Portfolio
Evaluating a Portfolio
Evaluating Performance
Trade Input
 
Trade Recommendations
Issue Evaluation
    Yield
Curve-Reversion
Yield-Reversion
Disparity
Miscellaneous
Penalties
Trading Valuation

Issue Evaluation

 

Reward Class Price-Movement Curve-Reversion

The REWARD_CLASS_PRICEMOVEMENT_CURVEREVERSION is comprised of the following elements:

Each of these elements measures the effect on the price of the issue being examined should the base yield curve, or the spreads against the base yield curve, revert to prior values. For further information on what is meant by the term "prior values", see the glossary items yieldCurveAveragesRecord and exponentialMovingAverage.

Regression Analysis
Intercept 2.74 ± 5.51
Slope 1.4712 ± 12.9612
Regression Sum of Squares 25.6127
Residual Sum of Squares 1987.9082
R Squared 0.0127
F Statistic 0.554
Rejection Threshold (SDev) 3.0
Rejection Count 1
Observation Count 88

For example, when evaluating MST.PR.A on 2006-01-19:
MST.PR.A Curve-Reversion (Retractible) Valuation
Calculation Name Value Source
Average Retractibility Spread -0.86% riskRewardAnalyticalValuesBox
Current Retractibility Spread -0.61% riskRewardAnalyticalValuesBox
Reversion -0.24% riskRewardAnalyticalValuesBox
Modified Duration - YTW 3.3855 riskRewardAnalyticalValuesBox
Raw Analytical Value -0.0081252 riskRewardAnalysisBox
curveRetractibleReversionSpeed -0.730 analyticalParametersReportBox
AnnualPercentageScalingFactor 100.0 riskRewardAnalysisBox
priceVolatilityScalingFactor 1.010 riskRewardAnalysisBox
REWARD_COMPONENT_CURVEREVERSION
_PREMIUM_RETRACTIBLE
+0.6112 riskRewardAnalysisBox

To express this calculation in English: The retractibility premium for the yield curve is "usually" -0.86% - that is, retractible issues are "usually" 86bp expensive. The current value of the retractibility premium is only -0.61%; our default expectation is for the premium to revert to normal with the result that retractibles will become 24bp (after rounding) more expensive than is currently the case. We multiply this by the ytwModifiedDuration to obtain the expected percentage change in the price of the issue, -0.0081252% [expressed with reversed sign!], or about 81bp.

The curve reversion speed is -0.73, indicating that about 73% of this expected gain is to be captured [note the reversed sign!], and after normalization, we find that the expected percentage increase in the value of MST.PR.A due to reversion of the curve to normal levels is approximately +0.61%, or 61 basis points.