Structured Finance Modeling with Object-Oriented VBA by Evan Tick (English) Hard

Description: Structured Finance Modeling with Object-Oriented VBA by Evan Tick A detailed look at how object-oriented VBA should be used to model complex financial structures This guide helps readers overcome the difficult task of modeling complex financial structures and bridges the gap between professional C++/Java programmers writing production models and front-office analysts building Excel spreadsheet models. FORMAT Hardcover LANGUAGE English CONDITION Brand New Publisher Description A detailed look at how object-oriented VBA should be used to model complex financial structures This guide helps readers overcome the difficult task of modeling complex financial structures and bridges the gap between professional C++/Java programmers writing production models and front-office analysts building Excel spreadsheet models. It reveals how to model financial structures using object-oriented VBA in an Excel environment, allowing desk-based analysts to quickly produce flexible and robust models. Filled with in-depth insight and expert advice, it skillfully illustrates the art of object-oriented programming for the explicit purpose of modeling structured products. Residential mortgage securitization is used as a unifying example throughout the text. Back Cover Praise for STRUCTURED FINANCE MODELING with Object-Oriented VBA "This book is an excellent and interesting integration of financial engineering, structured finance, and structured programming, and the book accomplishes this with easy-to-follow examples, using the most commonly available tools, MS VBA and spreadsheets. The author is clearly intimately familiar with structured products, the mechanics and challenges of securitization, and the financial and analytical modeling that is required to understand and manage these diverse financial products. The result is a book that demonstrates an easy-to-follow combination of finance and object-oriented programming. This is a must own book for the active practitioner, the financial engineer on the front lines of the structuring battle." --Cyrus Mohebbi, PhD, Head of MBS/ABS Structuring and Analytics, HSBC Securities Inc. "Tick has written a seminal structured finance book. He presents an approach to modeling that is both efficient and practical. His work will serve as a timeless template to simplify the complexity of structured finance." --Janet Tavakoli, President, Tavakoli Structured Finance "Dr. Ticks experience in applying theoretical concepts to various markets is well encapsulated in this book. A must-read for technicians and market practitioners alike who would like insight into practical solutions to complex financial modeling problems." --Adil Nathani, Old Lane Management "Reading Ticks book gives a real-world introduction to practical bond structuring, the activity that generates a significant part of Wall Streets profits. This book from a (financial) engineer who is intimately involved in this business, gives the details needed to generate accurate cash flows along with meticulously presented real-life examples. In addition to meat-and-potatoes asset and liability cash flows, he discusses optimization and stochastic modeling, a useful introduction to synthetic structures. This book also serves as an introduction to programming skills in VBA." --Ramine Rouhani, Managing Director, Head of Capital Markets, IXIS Capital Markets North America Flap Structured finance is a core activity of Wall Street firms, and securitization techniques are being used to model, create, and issue a large range of structured financial products. Modeling these securities requires that analysts have a firm understanding of some sophisticated modeling techniques—yet many analysts have neither the time nor the background to exploit the full power of C++ or more advanced programming languages. While they may be Excel experts, they often hit the "complexity wall" in Excel spreadsheets when modeling real financial structures. This book can help break through that wall, offering Wall Street professionals a practical guide to help overcome such challenges. Modeling is essentially abstraction and simplification while producing an accurate estimate of some aspect of a complex system. Whether the system is physical or financial, the attributes of a good model remain the same, and of the many financial engineering innovations developed over the past several years of feverish ABS (asset-backed securities) growth, the cash flow securitization model is key. In general, this model has three components: loss generation, collateral cash flow generation, and bond cash flow generation. But be it a vanilla securitization or a CDO (collateralized debt obligation) of CDOs; be it supported by mortgages, loans, or bonds; or be it cash or synthetic, the valuation model is essential in understanding the economics of the trade. Structured Finance Modeling with Object-Oriented VBA introduces this model and its implementation, providing illustrations of the model in action for actual deals, along with empirical studies of its sensitivities. Using sub-prime mortgage securitization throughout the book as a unifying example, it provides a detailed look at how object-oriented Visual Basic for Applications (VBA) can be used to price complex financial structures. Along with securitization, this book covers stochastic models, optimization techniques, object-oriented architecture, and more. Wall Street analysts and MBA students mastering object-oriented VBA programming skills are in great demand on Wall Street, and a step ahead of those without these skills. This invaluable guide provides both the mathematical specifications and programming techniques needed to perform modeling tasks efficiently and effectively—and keep ahead of the competition. Author Biography Evan Tick is a director at IXIS Capital Markets, and has worked on Wall Street for ten years. His expertise is fixed income and structured finance modeling in the areas of risk management, asset-backed securities (ABS), residential mortgages, and credit derivatives. Table of Contents Preface xi List of Acronyms xv Acknowledgments xvii About the Author xix Chapter 1 Cash-Flow Structures 1 1.1 Getting Started 1 1.2 Securitization 3 1.3 Synthetic Structures 10 1.4 Putting It All Together 13 Chapter 2 Modeling 16 2.1 Dipping a Toe in the Shallow End 17 2.2 Swimming Toward the Deep End 22 2.3 Types 29 2.4 Class Architecture 33 2.4.1 Weak Inheritance 37 2.4.2 Parameterized Class 42 2.4.3 Which Is Better? 43 2.5 Exercises 46 Chapter 3 Assets 48 3.1 Replines 49 3.2 Portfolio Optimization 52 3.2.1 Zero-One Program 53 3.2.2 Simulated Annealing 56 3.3 Losses, Prepayments, and Interest Rates 60 3.4 Cash-Flow Model 61 3.4.1 Zero-Prepay Cash Flows 63 3.4.2 Actual Cash Flows 66 3.4.3 Examples 74 3.5 S&P Cash-Flow Model 75 3.5.1 Model Parameters 77 3.6 Moodys Cash-Flow Model 80 3.6.1 Model Parameters 82 3.6.2 Algorithm 84 3.7 Option ARMs 86 3.8 Class Architecture: Multiple Inheritance 89 3.9 Doing It in Excel: SumProduct 94 3.10 Exercises 94 Chapter 4 Liabilities 98 4.1 Getting Started 98 4.2 Notation 102 4.3 Expenses 108 4.4 Interest 110 4.5 Over-collateralization 116 4.5.1 Current Subordinated Amount 116 4.5.2 Stepdown Date 118 4.5.3 Target Subordinated Amount 119 4.6 Principal 122 4.6.1 Gross Principal Distributions 122 4.6.2 Detailed Principal Distributions 124 4.7 Writedowns and Recoveries 128 4.8 Derivatives 130 4.8.1 Corridors 132 4.8.2 Swaps 134 4.8.3 Excess Reserve Fund Account 135 4.9 Triggers 137 4.9.1 Call Features 138 4.9.2 Overcollateralization Test 138 4.9.3 Interest Coverage Test 139 4.9.4 Delinquency Trigger 140 4.9.5 Loss Trigger 141 4.10 Residuals: NIMs and Post-NIM 141 4.11 Class Architecture 144 4.11.1 Passive Approach 144 4.11.2 Active Approach 158 4.11.3 Comparison 170 4.12 Doing It in Excel: Data Tables 170 4.13 Exercises 176 Chapter 5 Sizing the Structure 179 5.1 Senior Sizing 182 5.2 Subordinate Sizing 185 5.2.1 Fully Funded vs. Non–Fully Funded 190 5.3 Optimizations and Complexity 192 5.4 Example of Sizing 196 5.5 NIM and OTE Sizing 198 5.6 Class Architecture 203 5.6.1 Inheritance Revisited 203 5.6.2 Odds and Ends 207 5.7 Doing It in Excel: Solver 210 5.8 Exercises 213 Chapter 6 Analysis 217 6.1 Risk Factors 217 6.1.1 Prefunding 217 6.1.2 Prepayments 217 6.1.3 Buybacks and Cleanup Calls 219 6.1.4 Defaults 219 6.1.5 Interest Rates 221 6.1.6 Spreads 221 6.1.7 Miscellaneous 222 6.1.8 Residual Sensitivities 222 6.2 Mezzanine and Subordinate Classes 223 6.3 NIM Classes 230 6.4 Putting It All Together 232 6.5 Exercises 234 Chapter 7 Stochastic Models 235 7.1 Static versus Stochastic 235 7.2 Loss Model 238 7.2.1 Probability of Default from Transition Matrix 238 7.2.2 Probability of Default from Spread 241 7.2.3 Probability of Time to Default 242 7.3 Gaussian Copula 244 7.4 Monte Carlo Simulation 249 7.5 Synthetic Credit Indexes 251 7.5.1 Loss Lets 253 7.5.2 Analysis 256 7.5.3 Hedging 264 7.6 Doing It in Excel 270 7.7 Exercises 279 Appendix A Excel and VBA 285 A.1 Spreadsheet Style 286 A.2 Code Style 290 A.3 Compilation 295 A.4 Bloomberg 299 Appendix B Bond Math 303 B.1 Mortgage Payment 303 B.2 Yield to Price 305 B.3 Price to Yield 306 B.4 Duration 307 B.4.1 Index or Interest-Rate Duration 308 B.4.2 Discount Spread Duration 308 B.5 Hazard Rate 312 B.6 Static Credit Card Model 315 References 321 Index 325 Long Description Praise for STRUCTURED FINANCE MODELING with Object-Oriented VBA "This book is an excellent and interesting integration of financial engineering, structured finance, and structured programming, and the book accomplishes this with easy-to-follow examples, using the most commonly available tools, MS VBA and spreadsheets. The author is clearly intimately familiar with structured products, the mechanics and challenges of securitization, and the financial and analytical modeling that is required to understand and manage these diverse financial products. The result is a book that demonstrates an easy-to-follow combination of finance and object-oriented programming. This is a must own book for the active practitioner, the financial engineer on the front lines of the structuring battle." --Cyrus Mohebbi, PhD, Head of MBS/ABS Structuring and Analytics, HSBC Securities Inc. "Tick has written a seminal structured finance book. He presents an approach to modeling that is both efficient and practical. His work will serve as a timeless template to simplify the complexity of structured finance." --Janet Tavakoli, President, Tavakoli Structured Finance "Dr. Ticks experience in applying theoretical concepts to various markets is well encapsulated in this book. A must-read for technicians and market practitioners alike who would like insight into practical solutions to complex financial modeling problems." --Adil Nathani, Old Lane Management "Reading Ticks book gives a real-world introduction to practical bond structuring, the activity that generates a significant part of Wall Streets profits. This book from a (financial) engineer who is intimately involved in this business, gives the details needed to generate accurate cash flows along with meticulously presented real-life examples. In addition to meat-and-potatoes asset and liability cash flows, he discusses optimization and stochastic modeling, a useful introduction to synthetic structures. This book also serves as an introduction to programming skills in VBA." --Ramine Rouhani, Managing Director, Head of Capital Markets, IXIS Capital Markets North America Details ISBN0470098597 Author Evan Tick Short Title STRUCTURED FINANCE MODELING W/ Language English ISBN-10 0470098597 ISBN-13 9780470098592 Media Book Format Hardcover Series Number 390 Year 2007 Birth 1959 Edition 1st Series Wiley Finance Imprint John Wiley & Sons Inc Place of Publication New York Country of Publication United States DOI 10.1604/9780470098592 AU Release Date 2007-05-01 NZ Release Date 2007-05-01 UK Release Date 2007-05-01 Pages 352 Publisher John Wiley & Sons Inc Publication Date 2007-06-08 DEWEY 332.0113 Illustrations Drawings: 69 B&W, 0 Color; Screen captures: 25 B&W, 0 Color; Tables: 50 B&W, 0 Color Audience Professional & Vocational US Release Date 2007-06-08 We've got this At The Nile, if you're looking for it, we've got it. 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