Efficiently and effectively modeling securitized products is a tricky process, often requiring a trade off between time and accuracy. You can simplify valuation with proxy instruments and high-level cash flow assumptions. Or you can dive into the details, building giant, complicated spreadsheets that take longer to generate more defensible numbers. In either case the result is a snapshot of a single point in time that often needs to be recalculated as economic, payment, and risk characteristics evolve. Beacon Platform provides a range of capabilities that enable leading companies to combine the best of both scenarios, easily ingesting multiple data sources and quickly applying them to customizable models with the power of elastic cloud computing.

Integrating Data and Cash Flows

Beacon’s securitization and modeling advantages begin with the ability to ingest all sorts of valuable data. Integration with Intex simplifies access to cash-flow data for any security that Intex can load, including mortgage-backed securities, collateralized loan and debt obligations, and asset-backed securities. Securitized instrument definitions, a standard part of Beacon’s financial object hierarchy, combine cash flows with contract terms and other relevant data, providing a centralized reference point and quick path to running analytics at the loan, deal, or group level. Analysts can send scenario input parameters such as defaults, prepayment, and recovery rates directly to the Intex cash flow engine and rerun analytics on the revised output.Figure: Beacon scenario analysis application for agency pools loaded via Intex

More advanced users can readily add their own proprietary data, building sophisticated models that take into account information that others may not have, from detailed credit quality and loan performance metrics to macroeconomic factors that may affect future results. Beacon enables analysts to combine all of this valuable information into a single platform and easily reuse data and models across the entire portfolio. Integrating the Intex API with Beacon enables additional functionality, such as saving preferred deal load configuration options and automatically applying them when the same types of deals are loaded. 

Customers can improve valuations and reporting throughout the organization by using consistent discount curves, interest rates assumptions, and credit details for similar companies or scenarios, without having to hunt through multiple spreadsheets. Unlimited data time travel capabilities ensure that you can run analytics and reports as of any date and time, even after data or models have been revised, corrected, or updated. Preserve an audit trail of all changes and recreate initial valuations, quarter-end reports, or analyses before changes to contract terms or lifecycle events.

Modeling Multiple Scenarios

Spreadsheets are great for quick and simple valuation models but are often overwhelmed by the amount of data and demands to run multiple scenarios. Beacon’s securitized product modeling stack and elastic compute infrastructure combine to provide powerful tools that enable the team to focus on modeling and get results quickly. Standard macroeconomic models, such as interest rates, unemployment, and housing prices, can be augmented or replaced with user-defined models as appropriate to the underlying financial instruments. Outputs from macro models then flow into product models for prepayment, delinquency, default/termination, and loss severity to adjust the relevant parameters for the cash flow engines. You choose how many different scenarios or parameter shocks you want to analyze, run them sequentially or in parallel, and get consolidated results that make it easy to review and find the critical risk points. 

Want to build models based on 10-years of monthly performance history that translates to a million rows in Excel? No problem with an enterprise-scale database. Want to run a spread of different scenarios varying multiple parameters, and get results in minutes? Simply specify how many processors you want for the workload and pay for only the capacity that you use.

Leveraging Spreadsheets

Although spreadsheets may not be ideal for large data sets and complex models, they certainly have their uses and are not going to be replaced quickly. Beacon has a number of features that leverage your investment and experience in spreadsheets and augment them with the advanced capabilities of modern programming languages and cloud computing.

An Excel add-in lets your team follow a gradual migration process, keeping the familiar user interface of spreadsheets but storing and accessing data from Beacon Platform and performing larger or more complex calculations in the cloud. This tool works like an Excel function, accepting multiple arguments, passing them to the named function in your Beacon domain, and returning the calculated value or table.

Another option is an Excel Evaluator that can import an entire workbook into Beacon platform. The Evaluator reads and converts everything in the spreadsheet to appropriate objects in Beacon, including values, formulas, ranges, and cell dependencies. Once the spreadsheet has been imported your team can take advantage of the collaborative workspace to share models and reuse code, and connect to multiple data sources for richer and more up-to-date analytics. An advanced user-interface framework makes it quick and easy to create applications and share them securely to authorized users.

Building for the Future

If you can’t observe the price of something in the market, you need to build a model to value it. While the examples above focus on data and securities available from Intex, these same tools can be used to model other instruments, such as loans, leases, forward contracts, and exotic asset types. Beacon Platform provides a strong foundation for creating and managing models of securitized products, enabling the flexibility and responsiveness necessary to maintain a competitive edge.