MBS Analytics Calculation with SAP Market Risk Analyzer (SAP MRA)

Differentiated Sensitivity Analysis for Mortgage Backed Securities (MBS)

Minimize your financial risk through accurate forecasts with our SAP Market Risk Analyzer Solution

Portfolio management with SAP Market Risk Analyzer

SAP’s Market Risk Analyzer (MRA) calculates several key figures for fixed income securities, including yield, duration and convexity. These key global analytic figures are widely used in the community of SAP Financial Asset Management (SAM FAM) as well as SAP Treasury and Riskmanagement (SAP TRM) users to control and manage investors’ fixed income portfolios.

Do you need more than standard?

Utilizing the current “unadjusted” results for Mortgage Backed Securities (MBS) and other fixed income instruments with embedded repayment options (such as callable bonds) would lead to misleading conclusions. 

The reason is that the cost of the embedded option (such as the prepayments for MBS/ABS or investors’ short call for the callable) is not properly considered in the calculation. In order to make the bonds with and without embedded call options comparable, the yield, duration and convexity all need to be adjusted by the cost of the embedded option.

Differentiated Sensitivity Analysis

COMPIRICUS developed a solution that provides the following MBS/ABS/Callable analytics based on a given Option Adjusted Spread (OAS):

  • Weighted Average Life (WAL)
  • Option Adjusted Yield
  • Option Adjusted Duration
  • Option Adjusted Convexity

Our approach was to use as much of the existing, sophisticated SAP MRA functionality as possible. Therefore, the solution is based on SAP’s standard Single Value Analysis report and uses the configuration possibilities SAP is offering.

The cost of the embedded option as an interim result is calculated by means of an iteration approach determining the Zero-Volatility Spread and bringing it into the equation. All results are presented in SAP’s Single Value Analysis Report.