ORE User Guide Quaternion Risk Management 19 June 2020 1 Document History Date Author Comment 7 October 2016 Quaternion initial release 28 April 2017 Quaternion updates for release 2 7 December 2017 Quaternion updates for release 3 20 March 2019 Quaternion updates for release 4 19 June 2020 Quaternion updates for release 5 2 Contents 1 Introduction 8 2 Release Notes 10 3 ORE Data Flow 13 4 Getting and Building ORE 14 4.1 ORE Releases ................................. 14 4.2 Building ORE ................................. 16 4.2.1 Git ................................... 16 4.2.2 Boost ................................. 16 4.2.3 ORE Libraries and Application ................... 17 4.3 Python and Jupyter ............................. 19 4.4 Building ORE-SWIG ............................. 20 5 Examples 22 5.1 Interest Rate Swap Exposure, Flat Market ................. 23 5.2 Interest Rate Swap Exposure, Realistic Market ............... 25 5.3 European Swaption Exposure ........................ 25 5.4 Bermudan Swaption Exposure ........................ 26 5.5 Callable Swap Exposure ........................... 27 5.6 Cap/Floor Exposure ............................. 28 5.7 FX Forward and FX Option Exposure ................... 29 5.8 Cross Currency Swap Exposure, without FX Reset ............ 30 5.9 Cross Currency Swap Exposure, with FX Reset .............. 30 5.10 Netting Set, Collateral, XVAs, XVA Allocation .............. 31 5.11 Basel Exposure Measures ........................... 35 5.12 Long Term Simulation with Horizon Shift ................. 35 5.13 Dynamic Initial Margin and MVA ...................... 36 5.14 Minimal Market Data Setup ......................... 37 5.15 Sensitivity Analysis, Stress Testing and Parametric Value-at-Risk .... 38 5.16 Equity Derivatives Exposure ......................... 41 5.17 Inflation Swap Exposures ........................... 42 5.18 Bonds and Amortisation Structures ..................... 43 5.19 Swaption Pricing with Smile ......................... 44 5.20 Credit Default Swap Pricing ......................... 45 5.21 CMS and CMS Cap/Floor Pricing ...................... 45 5.22 Option Sensitivity Analysis with Smile ................... 45 5.23 FRA and Average OIS Exposure ...................... 46 5.24 Commodity Forward and Option ...................... 46 5.25 CMS Spread with (Digital) Cap/Floor ................... 46 5.26 Bootstrap Consistency ............................ 47 5.27 BMA Basis Swap ............................... 47 5.28 Discount Ratio Curves ............................ 47 5.29 Curve Building using Fixed vs. Float Cross Currency Helpers ...... 48 5.30 USD-Prime Curve Building via Prime-LIBOR Basis Swap ........ 48 6 Launchers and Visualisation 49 3 6.1 Jupyter .................................... 49 6.2 Calc ...................................... 49 6.3 Excel ...................................... 50 7 Parametrisation 50 7.1 Master Input File: ore.xml ......................... 51 7.1.1 Setup ................................. 51 7.1.2 Markets ................................ 52 7.1.3 Analytics ............................... 53 7.2 Market: todaysmarket.xml ......................... 61 7.2.1 Discounting Curves .......................... 62 7.2.2 Index Curves ............................. 63 7.2.3 Yield Curves ............................. 63 7.2.4 Swap Index Curves .......................... 63 7.2.5 FX Spot ................................ 64 7.2.6 FX Volatilities ............................ 64 7.2.7 Swaption Volatilities ......................... 65 7.2.8 Cap/Floor Volatilities ........................ 65 7.2.9 Default Curves ............................ 66 7.2.10 Securities ............................... 66 7.2.11 Equity Curves ............................. 66 7.2.12 Equity Volatilities ........................... 67 7.2.13 Inflation Index Curves ........................ 67 7.2.14 Inflation Cap/Floor Volatility Surfaces ............... 68 7.2.15 CDS Volatility Structures ...................... 68 7.2.16 Base Correlation Structures ..................... 69 7.2.17 Correlation Structures ........................ 69 7.2.18 Market Configurations ........................ 69 7.3 Pricing Engines: pricingengine.xml .................... 70 7.4 Simulation: simulation.xml ........................ 74 7.4.1 Parameters .............................. 74 7.4.2 Model ................................. 75 7.4.3 Market ................................. 81 7.5 Sensitivity Analysis: sensitivity.xml ................... 84 7.6 Stress Scenario Analysis: stressconfig.xml ................ 87 7.7 Calendar Adjustment: calendaradjustment.xml ............. 88 7.8 Curves: curveconfig.xml .......................... 89 7.8.1 Yield Curves ............................. 90 7.8.2 Default Curves ............................ 98 7.8.3 Swaption Volatility Structures .................... 99 7.8.4 Cap Floor Volatility Structures ................... 101 7.8.5 FX Volatility Structures ....................... 110 7.8.6 Equity Curve Structures ....................... 111 7.8.7 Equity Volatility Structures ..................... 112 7.8.8 Inflation Curves ............................ 115 7.8.9 Inflation Cap/Floor Volatility Surfaces ............... 117 7.8.10 CDS Volatilities ............................ 118 7.8.11 Base Correlations ........................... 123 7.8.12 FXSpots ................................ 123 4 7.8.13 Securities ............................... 124 7.8.14 Correlations .............................. 124 7.8.15 Commodity Curves .......................... 125 7.8.16 Bootstrap Configuration ....................... 127 7.9 Reference Data referencedata.xml .................... 130 7.10 Conventions: conventions.xml ....................... 132 7.10.1 Zero Conventions ........................... 132 7.10.2 Deposit Conventions ......................... 133 7.10.3 Future Conventions .......................... 134 7.10.4 FRA Conventions ........................... 134 7.10.5 OIS Conventions ........................... 134 7.10.6 Swap Conventions ........................... 135 7.10.7 Average OIS Conventions ...................... 136 7.10.8 Tenor Basis Swap Conventions .................... 137 7.10.9 Tenor Basis Two Swap Conventions ................. 138 7.10.10 FX Conventions ............................ 139 7.10.11 Cross Currency Basis Swap Conventions .............. 140 7.10.12 Inflation Conventions ......................... 141 7.10.13 CMS Spread Option Conventions .................. 141 7.10.14 Ibor Index Conventions ........................ 142 7.10.15 Overnight Index Conventions .................... 143 7.10.16 Swap Index Conventions ....................... 144 7.10.17 FX Option Conventions ....................... 144 7.10.18 Commodity Forward Conventions .................. 144 7.10.19 Commodity Future Conventions ................... 146 8 Trade Data 149 8.1 Envelope .................................... 150 8.2 Trade Specific Data .............................. 151 8.2.1 Swap .................................. 151 8.2.2 Zero Coupon Swap .......................... 151 8.2.3 Cap/Floor ............................... 152 8.2.4 Forward Rate Agreement ....................... 153 8.2.5 Swaption ................................ 154 8.2.6 FX Forward .............................. 155 8.2.7 FX Swap ............................... 156 8.2.8 FX Option ............................... 157 8.2.9 Equity Option ............................. 158 8.2.10 Equity Forward ............................ 159 8.2.11 Equity Swap .............................. 160 8.2.12 CPI Swap ............................... 161 8.2.13 Year on Year Inflation Swap ..................... 162 8.2.14 Bond .................................. 162 8.2.15 Forward Bond ............................. 164 8.2.16 Credit Default Swap ......................... 166 8.2.17 Commodity Option .......................... 168 8.2.18 Commodity Forward ......................... 169 8.3 Trade Components .............................. 170 8.3.1 Option Data .............................. 170 5 8.3.2 Leg Data and Notionals ....................... 176 8.3.3 Schedule Data (Rules and Dates) .................. 179 8.3.4 Fixed Leg Data and Rates ...................... 183 8.3.5 Floating Leg Data, Spreads, Gearings, Caps and Floors ...... 184 8.3.6 Leg Data with Amortisation Structures ............... 189 8.3.7 Indexings ............................... 190 8.3.8 CMS Leg Data ............................ 194 8.3.9 CMS Spread Leg Data ........................ 195 8.3.10 Digital CMS Spread Leg Data .................... 196 8.3.11 Equity Leg Data ........................... 198 8.3.12 CPI Leg Data ............................. 202 8.3.13 YY Leg Data ............................. 205 8.3.14 ZeroCouponFixed Leg Data ..................... 207 8.3.15 CDS Reference Information ..................... 208 8.3.16 Underlying .............................. 209 8.4 Allowable Values for Standard Trade Data ................. 213 9 Netting Set Definitions 220 9.1 Uncollateralised Netting Set ......................... 220 9.2 Collateralised Netting Set .......................... 220 10 Market Data 224 10.1 Zero Rate ................................... 225 10.2 Discount Factor ................................ 226 10.3 FX Spot Rate ................................. 226 10.4 FX Forward Rate ............................... 227 10.5 Deposit Rate ................................. 227 10.6 FRA Rate ................................... 228 10.7 Money Market Futures Price ......................... 229 10.8 Overnight Index