CMO Cashflow Table
Collateralized Mortgage Obligations (CMO's) are examples of "rule based securities", whose cash flows are determined by a set of instructions. The rules differ from issue to issue and can be quite complex. This diversity poses a challenge for analysis, but also provides an opportunity for enhanced portfolio return and risk management.
A proper analysis of CMOs requires the accommodation of basic rules which specify the allocation of cash flows in the appropriate amount, sequence and priority. While the problem can be addressed by an organized and machine-readable rule structure, a further capability is required for situations where such coverage is unavailable. In HedgeOne, this takes the form of a structured language similar to programming languages.
A schematic diagram of the rule-based structure implemented in HedgeOne is shown in following figure.
Since CMOs are path-dependent instruments, CMO calculations must use Monte Carlo simulation. This is computationally intensive. To reduce time, HedgeOne divides the CMO calculation into two steps. The first step calculates the cash flow table of a CMO deal. The second calculates duration, price, etc.
CMO deals are complex instruments. HedgeOne provides a browser (shown below) to review CMO deal information easily.
Copyright© Hedge Systems, Inc. 
