Financial Solution

Contents Service

Bond Multi Factor

Improved analytical methodology based on changes in the concept of Return/Risk on bonds

Existing: Analyzing Return / risk of sector / maturity → Focusing on changes in interest rate structure and spreads by credit ratings

Using Key Rate Duration

It is possible to measure not only parallel movement of interest rates, also possible to measure spread movement, curvature and change of specific bond section movement and movement of all interest rate structures.

Consistency to the various portfolio analysis
  • Analyze by bottom up method which is sum of decomposition results for each items
  • Gives consistency to various portfolio analysis
Easy comparison between the bond indices and the portfolios
  • Capability of interpreting bond index as a single bond item by sum of decomposition results for each items in the index.
  • Simplified comparison between the portfolio and the index

Capability

Analysis of the investment product and Portfolio style
  • Factor Exposure comparison between portfolio and Bond-Index
  • Ability to identify/ differentiate investment management style
Portfolio Risk Management
  • Calculate the variability of factor return by each factor
  • Estimation of variability of excess return compared to the index (Ex-ante risk)
  • Portfolio performance risk management with expected distribution of excess returns
  • By analyzing the variability of excess returns by factor, preemptive risk management is possible
Portfolio performance Analysis
  • Analyze the source of performance by dividing the profit during the operating period By decomposing each factor of the returns able to display source of the performances
  • Existing Performance Analysis
    • Bond / maturity breakdown is the main analytical structure
    • Existence of a gap between the actual investment decision-making process
  • Factors that contributes to returns can be analyzed (realistic comparison between actual performance and performance analysis)
Reporting and Optimization Portfolio Configuration
  • Consistent analysis of the entire process (management style, performance, and risk) based on Factor
  • Objective and reasonable bond management report possible
  • Factor Optimized portfolio composition can be achieved by placing constrains on the

Volatility Surface

  • One of the biggest influences on price of ELS / DLS in the market
  • Prior to using the "Volatility Smile” the single estimated volatility value represented all volatility of the products
  • To compensate, the estimated volatility value differences between exercise prices the "Volatility Smile” are used.
  • 2005: Developed to reflect institutional investor's management process
  • 2018: Strengthening Web-based user-friendliness and expanding services to customers with diverse platforms
  • More Sophisticated valuation of ELS / DLS using Vol Surface volatility
  • Reduces unnecessary operational risk by reducing the gap in operation
inform of Single Volatility, Volatility Smile, Volatility Surface

Volatility Surface Model

KISP use SABR Model and Log-Normal Mixture Model

SABR Model
  • Models future forward price and volatility of underlying assets
  • Estimation possible even with small data set
inform of SABR Model
Log-Normal Mixture Model
  • Use of mix of multiple Log-Normal models of create models on underlying assets and volatility
  • Detail representation of volatility surface can be achieved
inform of Log-Normal Mixture Model
By using two models, KISP is able to provide a volatility surface model that can be used in the market
inform of OTC option+Listed option=Modeling

Volatility Surface Applied Comparison

Example) SPX 2018-07-30 1YR

Volatility
inform of Volatility Surface graph
Price Result (Option Value)
  • In the case of single volatility, large gap between the value of the option calculated with implied volatility
  • The value of the option calculated with implied volatility show instability as exercise price rises
  • By applying KISP Vol surface, value of the option can enhance the value
  • By applying Vol. Surface, elaborate valuation(pricing) of ELS and DLS can be achieved
inform of Volatility Surface Price Result graph