Matrix pricing can be run in both the single security and portfolio sections:
1. All bonds must be inputted. To correctly calculate yield-to-worst or OAS the input must include the full call schedule and a sinking fund double-up percent if any. Each bond must be assigned at least one rating. By default it will use the primary rating field or the input on the portfolio input screen (which overrides the security input). The rating must be a member of the scale that is designated on Alt-R twice when inside the security. By default it can be either be S&P or Moody's. BondCalc has eight rating fields and on Alt-R twice one can designate which are to be used when matrix pricing and how they are weighted. Each bond must also be assigned the name of an existing spread matrix in the "Class" input field (follows primary rating field) unless the rating is GOVT which assumes that there is no spread over the Trasury curve. 2. A Treasury Yield Curve must be inputted in the ^Y (or ShftF4) yield curve database. The second of the two input screens will allow for finer granularity on the short end and allows for entering the maturity dates having the program calculate the years. The first input screen, however, has an option for not interpolating between surrounding yields but for taking the closest yield. 3. Designate yield curve. This can be done in two ways: (1) entering the name of the Yield Curve Base on ShftF6 Portfolio Parameter Screen, or (2) entering it on the Portfolio Override Screen (Alt-O when in the Portfolio section). 4. Using ^M (or ShftF10) input several Spread Matrices by averaging the spreads collected from several dealers in the secondary market. If running OAS pricing then these matrices should be for Option Free Bonds with the same average lives as the holding with the embedded options. Suggest building matrices for the Industrial, Financial and Utility industry sectors. (Could also create matrices for Canadian, Government guaranteed, Yankee/Euro and Pipeline issues.) You need not fill in all input fields. Blank spreads within the matrix will be interpolated from surrounding rows. BondCalc will then interpolate values not explicitly inputted and extend nearest value for time periods beyond inputted range. You can print out a copy of the filled in matrix with F6. Note that these can be stored in nests of matrices by date. Name matrix with date in CCYYMMDD format to activate. Non-current Coupon Adjustment - If pricing using security's worst flows you still can adjust for issues at a discount (i.e. with a coupon lower than current market conditions) as their value would not necessarily be the same as an issue with a current coupon. (At the current time they are worth a premium to market as they are assumed to remain outstanding to maturity.) The Treasury base plus the spread from the above matrix will be used as the current coupon. The first row is the difference (in %) the issue's coupon is away. You have a choice of two methods for the second row: 0 - Percent Change will change the base by the % entered, 1 - Additive will add basis points interpolated from this row. If negative entered it will reduce the yield. 5. On the Ctrl-J Sector Spread Differential database you can also set a spread difference based on a market sector code that is inputted on the second page of the main input. Inside the Portfolio use Alt-O to popup the Parameter Override Screen. Designate which sector spread database you are using. 6. On the ShftF6 Parameter input screen you must designate the interpolation method. Average life space is the default. The Matrix Pricing Type field also controls the use of a zero spot curve and the turning of the yield into an Option Free Yield. (See explanations below.) 7. If OAS Pricing enter Volatility and related control variables on the Ctrl-O input screen. 8. On a portfolio input screen input the list of bonds to be included. Use F3 to point and add securities to the portfolio. If you know a bond's price, yield, or spread input it at the portfolio level and the program will not create a matrix yield for it. Using inputted price the program will solve for the yield and the report will display this yield and its spread over Treasuries. 9. Portfolio Overrides. Certain settings should be set for each portfolio. These can be found on Alt-O when inside a portfolio. On this screen you can set settlement date, yield curve, path to securities, spread matrix nest date or path, and other things. One feature is a Matrix Pricing Mode which can bet set for Money Market Mode where the yield curve is ignored and spreads are assumed to be rates (but still entered in basis points). 10.On the second page of the Portfolio Report Menu you can set the calculations to use the issue's worst flows (yield-to-worst). The default is using only the cash flows to maturity. Suggest using yield-to-worst. With this option BondCalc will matrix price the bond to each of the call dates with regular sinking funds, and to each of the call dates with doubled-up sinkers, if the provision exists. BondCalc will then select the lowest matrix price. Each of the cases will do its own interpolation, using respective average life, from the yield matrix and the spread matrix. This field has no effect if in OAS pricing mode. 11.Select the "Portfolio Evaluation Using Matrix Pricing" from the report menu. Output will be printed in data file order. Sort data first. Calculated prices, accrued interest and totals will appear on this report and the results are used for any other Portfolio reports in the calculation pass. If you enter a C in the selection column you can clone the portfolio with the new one having the calculated prices entered as input. 12.If running several portfolios the Compare/Batch Section can be used to run them in one pass. When cloning the results multiple new names will be asked for.