MBRM PRESS RELEASE
http://www.mbrm.com
Launch of UNIVERSAL Addins (version 8)
Feb 1998
MBRM are pleased to announce the launch of version 8 of their derivative pricing and risk management products :
1. UNIVOPT  Universal Options Addin
Version 8 of UNIVOPT is the latest version of our option system which is regarded by many dealers and risk managers as the industry standard option pricing and risk management system. Amongst the new features are 6 new models. The options addin calculates option prices and implied volatilities using the Black, BlackScholes, GarmanKolhagen, CoxRubinstein (binomial) models, as well as proprietary models for normally distributed underlying instruments. UNIVOPT handles European and American style options on bonds, commodities, currencies, futures (including 3M interest rate futures) and shares (including constant dividend streams and discrete dividend payments). It also calculates sensitivities, such as delta, gamma, fugit, kappa (vega), rho, theta and theta2. UNIVOPT also contains a warrant pricing function which takes into account dilution, (which is very useful when analysing warrants about to be issued by companies on their own stock).
UNIVOPT enables the production of pricing matrices, risk return profiles and implied volatility analysis for either individual or portfolios of options.
Major enhancements in version 8 include:
 Ability to pass a whole yield curve and volatility curve.
 4 new option pricing models for normally distributed underlying
instruments. These models are useful for a large number of contracts in
which the underlying does not follow a log normal distribution. It can
therefore handle contracts where the underlying can go negative.
 2 new option pricing models for options on 3M interest rate futures.
 Warrant pricing function taking into account dilution. This is very
useful when analysing warrants about to be issued by companies on their own
stock.
 New Implied strike function (implies the strike of an option given a
desired option price). This is very useful when writing OTC options.
 New interest rate risk measurements (e.g. Delta Decay and Delta Decay
2).
 The maximum number of steps in the binomial tree has been increased from
600 to 10,000. Different options on one spreadsheet can be valued using
different number of steps.
 Tolerance of the Implied Volatility function can be specified in the
call to the Implied Volatility function.
 Dividends can be percentage, absolute or present valued.
 Dates can be passed as actual dates or number of years.
 More interest rate conventions handled.
 Settlement delays and interest rate conventions handled automatically in the option pricing and risk management function calls.
2. UNIVEXOT  Universal Exotics Addin
Version 8.2 of UNIVEXOT is the latest version of our exotic option system which is regarded by many dealers and risk managers as the industry standard option pricing and risk management system.
Major enhancements in version 8 include :
 Additional exotics handled, including
Windowed Barriers and Windowed one and two touch
options, and "Asset or Nothing" options.
 Can be linked to the module "Analytical extension to UNIVGARCH" to
provide enhanced accuracy.
 The maximum number of steps in the binomial tree has been increased from
300 to 5,000. Different options on one spreadsheet can be valued using
different number of steps.
 Tolerance of the Implied Volatility function can be specified in the
call to the Implied Volatility function.
 Dividends can be percentage, absolute or present valued.
 Dates can be passed as actual dates or number of years.
 More interest rate conventions handled.
 Settlement delays and interest rate conventions handled automatically in the option pricing and risk management function calls.
3. Analytical extension to UNIVEXOT  Universal Exotics Addin
This module implements the latest research papers on the analytical pricing of exotic options (including continuous and discrete barriers and continuous and discrete lookbacks). These analytical models are accessible by simply changing the model number when using UNIVEXOT. This enables numerical, Monte Carlo and analytical option pricing and risk management.
4. UNIVGARCH  Universal Garch Addin
UNIVGARCH implements various Garch models (including NGARCH, EGARCH and OGARCH). Proprietary optimisation techniques implemented under 32bit Windows are utilised which finally enable the practical use of Garch models in a trading environment. The Garch model increases the accuracy in the pricing of standard and exotic options (including Windowed Barriers and Windowed one and two touch options) where the underlying does not follow a perfect lognormal distribution (e.g. it has fat tails or nonstandard Kurtosis). The Garch model has been proven more accurate than "BlackScholes" type models, especially for out of the money options which are close to maturity.
The Garch model is considered an effective volatility forecaster. UNIVGARCH thus enables the forecast of the forward volatility for any time period and this volatility forecast can also be used in a standard option pricing model, increasing the accuracy of the standard option pricing model.
Simulations can be carried out with variable step length, including the handling of discrete dividends and a term structure of interest rates. These substantially increase the accuracy and types of options which can be analysed. Advanced variance reduction techniques are also implemented to substantially increase the accuracy/speed ratio.
UNIVGARCH can also be used for the MonteCarlo pricing of standard and exotic options assuming a constant volatility, therefore increasing the scope of usage to situations where a standard lognormal distribution is desirable.
The addin is fully callable from Excel, Visual Basic, C, C++, Access etc.
Options handled by UNIVGARCH include :
Down and in  Windowed Down and In 
Up and in  Windowed Up and in 
Down and out  Windowed Down and out 
Up and out  Windowed Up and out 
Lookback  Windowed Lookback 
Compound  
Euro Digital  Asset or Nothing 
Up one Touch  Windowed Up one Touch 
Down one Touch  Windowed Down one Touch 
Two Touch  Windowed Two Touch 
Double Barrier in  Windowed Double Barrier in 
Double Barrier out  Windowed Double Barrier out 
New MBRM Derivatives Combined Package  Inclusive of:
UNIVOPT  Universal Options Addin
UNIVEXOT  Universal Exotics Addin
Analytical extension to UNIVEXOT
UNIVGARCH  Universal Garch Addin
5. UNIVINT  Universal Interpolating Addin
This addin was previously called UNIVZERO  Universal Zerocurve Addin. The name has been changed to Universal Interpolating Addin in order to reflect that the major use of the addin as an interpolating addin. It also emphasises that the addin can do interpolation on any curve (and not just zerocurves). The name change also emphasises that this addin does not generate zerocurves (since this is done by UNIVSWAP  Universal Swap Addin).
The major new enhancements in version 8 is a new two dimensional lookup function. This is very useful for looking up volatilities. This function "=UIA_TWO_WAY_LOOKUP( )" is illustrated in sample sheet UIAEXAMP.XLS.
Two major areas of use are :
a) Swaption volatilities. These are commonly quoted on a volatility grid, e.g. :
Underlying Term (years) 

3  4  5  6  
Option Term 
3  11.53%  10.66%  9.92%  9.25% 
4  10.60%  9.86%  9.18%  8.55%  
5  9.86%  9.17%  8.53%  8.01%  
6  9.22%  8.56%  8.04%  7.55%  
7  8.66%  8.13%  7.63%  7.15%  
Based on the above grid, the addin calculates a volatility of 10.02% for a 4.3 year option on a swap which, on exercise, would have a remaining life of 3.5 years. 
b) Volatility smiles (or skew). Since the volatility smile is a function of both time to maturity and the level of In or out of the money, a two dimensional table is needed :
Strike Price less than ATM ATM Strike Price greater than ATM 



ATM = At the money (where the strike price is the same as the underlying). In the above matrix, the volatility is based around 0% to emphasis the "smile". Since the "smile" is added to the base market volatility, the grid does not have to be altered for a general increase in volatility. 
6. UNIVYLD  Universal Yield Addin
Major enhancements in version 8 include :
 New function "=UYA_FORWARD_PRICE( )" for calculating the forward prices
of a bond based on a Repo rate (even over coupon days and holidays). This is
essential for accurate analysis of short term options on bonds since most
dealers base use the forward price as the basis of their calculation. Once
the forward price of the bond is calculated, the option on the bond is then
calculated using our UNIVOPT  Universal Options Addin by setting the
underlying to be based on a "future" and entering the price volatility of
the bond.
 Since yield volatilities are commonly quoted for bonds (and not price
volatility), UNIVYLD now calculates the factor to convert from yield
volatility to price volatility for options on bonds. The "Yield Vol > Px
Vol Factor" is calculated by requesting return type 28 from the yield
addin.
These are illustrated in the sample spreadsheet "UYAEXAMP.XLS" (sheet YC_UNIVERSAL2 and YC_STRAIGHT). The appendix of the options manual (MANUOA.DOC) has further information on options on bonds.
 New function "=UYA_TRUE_YIELD( )" for calculating the "True Yield" of a
bond. This is the yield adjusted for cash flows on weekends and holidays. It
is frequently used in the UK Gilt market and internally by many
practitioners to assess the impact of holidays on the standard quoted
yields.
This function is illustrated in the sample spreadsheet "UYAEXAMP.XLS" (sheet YC_UNIVERSAL2 and YC_STRAIGHT).
 Calculation of US Treasury Equivalent yields for all bonds. This is
slightly different than the calculation of semiannual yield since it also
takes into account the different accrued conventions in the US market. The
US Treasury Equivalent yield is calculated by requesting return type 30 from
the yield addin.
 The cash flow analyser has been enhanced to simplify the link to the
swap addin's cash flow generator. Now the cash flow dates can remain as
Excel dates (i.e. they need not be converted to years) and the Cash flow
dates and time can be one array (previously they had to be passed as two
arrays).
7. UNIVSWAP  Universal Swap Addin
This is used by major traders and fund managers worldwide to price, hedge and monitor their derivative positions. The system marks to market the portfolio and provides a risk analysis for parallel or nonparallel yield curve shifts. It also calculates the hedging position to eliminate the sensitivity to the yield curve. Major enhancements in version 8 includes a smoother blend between deposits, futures, discount bills, FRA, bond and swap curves. Another major enhancement is the automatic calculation of the convexity bias for interest rate futures when building each currency's zero curve.
UNIVSWAP  Universal Swap Addin is an Inclusive package of :
UNIVOPT  Universal Options Addin
UNIVEXOT  Universal Exotics Addin
UNIVYLD  Universal Yield Addin
UNIVINT  Universal Interpolating Addin
UNIVSWAP  Universal Swap Addin (module)
8. UNIVCONV  Universal Convertibles Addin
The Universal Convertibles Addin handles portfolios of Convertible Bonds with structured calls, puts and conversion schedules, nonstationery share/bond correlation, time dependent credit spreads, discrete and continuous dividends, crosscurrency and multiple conversion ratio resets. The addin can be linked with most realtime feeds to provide a dynamic analytical environment which continuously marks to market multicurrency portfolios, and thereby improves P&L and Risk monitoring.
The Universal Convertibles Addin uses a multifactor trinomial NoArbitrage lattice tree (with mean reversion), which we believe is the best, fastest, and most accurate advanced approach for Convertible Bonds.
The addin software is implemented as function calls in a Dynamic Link Library (DLL), thus assisting in the ease of use and integration into the user’s analytical environment. The addin can therefore be called from Excel, Access, Visual Basic, C, C++, Fortran etc. This objectorientated buildingblock approach provides unequalled speed, costeffectiveness and flexibility.
For increased accuracy in the construction of the interest rate term structure curve and for calculation of sensitivities caused by nonparallel yield curve shifts, we recommend that the Universal Convertibles Addin be used with our Universal Swap Addin.
Dr Mamdouh Barakat, Managing Director, says "We believe that our new convertibles addin sets a new standard for accuracy, speed AND price which other systems will find hard to beat. A Convertible Bond is a combination of both a bond and an equity option which gives the holder the right to exchange the Convertible Bond for shares. Convertible Bonds are very popular with investors and fund managers since they have the certainty of being a bond together with the potential upside from the equity component. Since certain fund managers are prevented from holding equity options, Convertible Bonds can provide their only means to have a positive exposure to the stock market. The accurate analysis of Convertible Bonds is a very complex area. This is one of the reasons why there are very few software packages available for analysing Convertible Bonds. In our new convertibles addin, we have combined the latest techniques and models from both the fixed income and equity derivative world."
9. MBRM CMS / Bermudan / American options on Bonds / Swaption Addin
This is an optional addin for users of our UNIVSWAP  Universal Swap Addin who require the pricing and risk management of Constant Maturity Swaps (CMS) and/or Bermudan and American style options on Bonds or Swaptions. The approach used is based on the extended Vasicek (HullWhite) models for implementation of a NoArbitrage term structure model for interest rates (with mean reversion), and utilises a balanced trinomial tree for increased accuracy. One application would be the accurate valuation of the imbedded call or puts in bonds. Another application is the valuation of basis swaps (e.g. 10 year swap versus 6 month LIBOR).
10. MBRM Futures/FRAs Arbitrage Module
This is an optional module for Excel users of our Universal Swap Addin who require the analysis of the arbitrage opportunities between interest rate futures, FRAs and Swaps. The module is designed to be used by traders in a fast moving market. Therefore ease of use is maximised. Grids are calculated and displayed for forward futures, FRAs and Swaps to enable the quick comparison of the arbitrage opportunity between the markets. Trades are entered and the positions are continuously marked to market.
11. MBRM Multi Asset Monte Carlo Analyser
The MBRM Multi Asset Monte Carlo Analyser generates simulations in order to analyse complex multi asset dependent options and securities portfolios (e.g. for compliance or regulatory risk management) in a Riskmetrics compliant methodology. Version 8 includes a number of new features including a graphical representation of the simulation results, the ability to easily alter the time horizon, and an increase in calculation speed.
12. MBRM Exchange Traded Options System
New features in version 8 include trade entry, risk analysis using a 3D graph, P&L analysis (broken down per trade) and implied volatility and smile analysis from market prices.
For further information, please contact our Sales Team
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