For supported instruments the Solver function lets you calculate (or solve) which input you need to get the result you want. What inputs the Solver can calculate and for which specified results depends on the instrument type, and whether you are in the Single Option page or the Portfolio page.
In the Portfolio page:
For a vanilla cap/floor or a swaption, you can solve for what strike or notional will give a defined market price for the entire portfolio.
For a vanilla, you can solve for what fixed rate, spread or notional will give a defined market price for the entire portfolio.
You can solve for more than one instrument simultaneously, as long as you are solving for the same field for each instrument. If you are solving for a number of fields simultaneously, it is important to note that the Solver calculates the single value (strike, notional, fixed rate, etc.) that can be used for all of the selected instruments. So if you select three instruments and want to solve for their strikes, the system calculates the same strike that can be used for all three of them. Moreover, if you have manually defined the strike for some of the instruments in the portfolio, the system takes these strikes into account as they are. That is, it only calculates the strike for the instruments you request.
For the strike, fixed rate and spread, to solve for more than one instrument at once, simply click the relevant field for each instrument. However, to solve for the notional for more than one instrument at once, you must first click each instrument’s header, and only then the Notional field.
Note that if you are solving for the notional, the Solver does not work for an instrument which already has different notionals assigned to its underlying coupons. You will first have to reset the notionals to their original value by clicking the Var button.
You can also use the Solver in the Single Option page. For more information, see Using the Solver in the Single Option Page.
To use the Solver to work out the strike/fixed rate/spread/notional that will give a defined market price for the entire portfolio:
| 1. | In the Portfolio page enter the instruments that make up your portfolio, or access an existing portfolio. |
| 2. | Click the Solver button. Alternatively click <F8> on the keyboard. The fields that can be solved for appear underlined. Also when you point at them on the screen, the cursor changes to a hand icon and the field changes to red. |
| 3. | To solve for a: |
Strike, fixed rate or spread (depending on the instrument), click the field for which you want to solve for each relevant instrument.
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If you are solving for multiple instruments, you must click the same field to solve for in each instrument. |
The textbox for the field for each selected instrument turns orange.
Notional, first click the heading box of each instrument for which you want to calculate the notional. The instruments are highlighted in blue. Then click the Notional field. It is highlighted in orange for each instrument whose heading box you clicked.
| 4. | In the Market Price field for the entire portfolio, enter a price. |
| 5. | Click Calculate. The required value is calculated by SDX Interest Rates. |