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The REWARD_CLASS_PRICEMOVEMENT_CURVEREVERSION is comprised of the following elements:
Each of these elements measures the effect on the price of the issue being examined should the base yield curve, or the spreads against the base yield curve, revert to prior values. For further information on what is meant by the term "prior values", see the glossary items yieldCurveAveragesRecord and exponentialMovingAverage.
| Regression Analysis |
| Intercept |
2.74 ± 5.51 |
| Slope |
1.4712 ± 12.9612 |
| Regression Sum of Squares |
25.6127 |
| Residual Sum of Squares |
1987.9082 |
| R Squared |
0.0127 |
| F Statistic |
0.554 |
| Rejection Threshold (SDev) |
3.0 |
| Rejection Count |
1 |
| Observation Count |
88 |
For example, when evaluating MST.PR.A on 2006-01-19:
To express this calculation in English: The retractibility premium for the yield curve is "usually" -0.86% - that is, retractible issues are "usually" 86bp expensive. The current value of the retractibility premium is only -0.61%; our default expectation is for the premium to revert to normal with the result that retractibles will become 24bp (after rounding) more expensive than is currently the case. We multiply this by the ytwModifiedDuration to obtain the expected percentage change in the price of the issue, -0.0081252% [expressed with reversed sign!], or about 81bp.
The curve reversion speed is -0.73, indicating that about 73% of this expected gain is to be captured [note the reversed sign!], and after normalization, we find that the expected percentage increase in the value of MST.PR.A due to reversion of the curve to normal levels is approximately +0.61%, or 61 basis points.
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