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Savvysoft Releases Upgrade To OTCBacktesting&Risk

Bloomberg App Portal Offering Adds Solver, Ability to Simulate Higher or Lower Historical Volatility, and More


New York, July 29, 2016 -- Savvysoft announced today a major upgrade to OTC Backtesting&Risk, which runs on the Bloomberg App Portal. OTC Backtesting&Risk allows users to quickly backtest all types of derivatives, options and bonds to see how they would have performed over any historical time period. VaR, CVA and xVA may also be calculated with virtually no effort using forward testing. The enhancements include:

Generic solver added

Users can solve to find out the value of an input that will result in a specified result. The result can be a price, or any Greek. For example, find the volatility that results in a price of 3, or the strike that has a delta of .6, or the yield spread that prices a callable bond at 96. The Solver is accessed through a simple interface and it calculates instantly.

Historical volatility can be adjusted higher or lower

When running a backtest, VaR or xVA, the volatility of historical data in every market can be adjusted by simply setting what percentage of historical changes to use. For example, if it is set to 150%, then a historical price change from 10 to 11 (10%) will be modified to go from 10 to 11.5 (15%). The correlations among different historical data series are preserved. This input allows users to easily run stress tests under extreme scenarios, and also to run tests over one historical period using the overall volatility level from a different historical period. This means, for example, if the current market is more volatile than five years ago, a test run using data from five years ago can use amplified volatility to make the test more relevant to today’s markets.

Portfolio multi-period VaR

The standard VaR calculation looks ahead over a specific single time horizon, such as the next day or week, across multiple scenarios. Multi-period VaR continues the simulation in each scenario to go out far into the future, such as quarterly for 10 years. This allows VaR to be reported for each future time period, and captures instrument characteristics such as a bond’s or swap’s tug to par at maturity and an option’s declining time premium. This calculation is now available for portfolios as well as individual instruments.

CUSIP lookup

For callable bonds, users can simply enter the CUSIP, and the app will automatically fill in all the bond’s relevant characteristics, such as maturity, coupon, call schedule, etc.

Hybrid interest rate process added

Savvysoft’s research shows that interest rates follow a lognormal distribution when rates are low and a normal distribution when rates are high, with a blend of the two when rates are in between (“Are Interest Rate Changes Normal or Lognormal?”, July 2016). The methodology employed in OTC Backtesting&Risk has been updated to follow this process when generating moves based on historical data. One result of this is that rates will not become very negative, or too large, when simulating rates moves over multiple time periods out many years.

These enhancements, along with other incremental improvements, make the latest version of OTC Backtesting&Risk an indispensable tool for pricing, hedging, structuring, and measuring the risk of options and derivatives. The historical backtest and forward testing tools are not available anywhere else on the market, and replace hours of error-prone drudgery in spreadsheets with instant results requiring virtually no inputting.

OTC Backtesting&Risk is only $499/month, with a free trial available on the Bloomberg terminal at:

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About Savvysoft

Savvysoft is a New York City-based provider of award-winning high-caliber OTC derivatives analytics, portfolio and risk management systems, and OTCBacktesting&Risk, a brand new derivative risk and historical testing app on the Bloomberg App Portal. Savvysoft’s analytical products handle OTC derivatives in many markets including: equities, interest rates, FX, commodities, convertibles, electricity, energy, and credit. Savvysoft products are used by thousands of institutions in over 30 countries worldwide. The institutions include top-tier banks, dealers, brokers, money managers, energy suppliers, corporate treasurers, auditors and consultants. Savvysoft was founded by Rich Tanenbaum, the head of Derivatives Research at Bankers Trust (now Deutsche Bank). Rich was a founding member of the first OTC derivatives desk on Wall Street at Bankers Trust. Tel: +1 212-742-8677; Fax: +1 212-425-8677; Web: www.savvysoft.com, www.calc4web.com.

All product names referenced herein are trademarks of their respective companies.

Contact: LeeAnn Chen (212) 742-8677 leeann@savvysoft.com

 

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