In the Structuring Tool, users have the ability to use our algorithm to optimize leverage on their tranches based on the collateral, scenarios, and existing structure:


Algorithm

  • The optimization goal is to maximize the tranche sizes top-down from the most senior to the least senior.
  • The constraints are: 
    • tranche cannot suffer loss under the stress scenario of its rating. 
    • sum of tranche balances equals to the collateral balance.

  • The inputs are stress scenarios and necessary cashflow components (collateral, payment priorities, tranches, fees, accounts, etc.).

  • The outputs are percentages showing each tranche balance relative to the collateral balance.

Run the Optimization

  • Define all scenarios needed for each rating in the scenario card.

  • Define necessary cashflow components(collateral, payment priorities, tranches, fees, accounts, etc.).

  • Click on Solve Tranche Size button. In the pop-up window, users will see all defined tranches and scenarios in the dropdown lists. Assign each tranche its stress scenario accordingly and define a tolerance. The solver tolerance will be the precision of percentages generated.

  • Click on Solve, it will generate a table with tranche sizes expressed as percentages and dollar amounts.

  • Users are able to apply the tranche size solution to by clicking on Apply Allocation, this will update the tranche balances in Tranchestab of the Waterfall Components card.

  • Users can save down this structure with the Save button on the top left of the page.