Introduction

The inspiration for Bond Lab arose from the recommendation on the part of the Structured Finance Industry Group to provide mortgage and consumer asset-backed bond payment rules, commonly referred to as the waterfall, in an open source programming language. Although well intended, the recommendation suffered from the following problems:

• First, the waterfall is but one of several structural objects that must come together within the program to define a structured security. Thus, it was rightly pointed out by several providers of commercially available software that a waterfall, in and of itself, is insufficient to analyze structured securities.
• Second, the recommendation mentioned Python as an example of a human readable open source programming language. Although only an example, mentioning Python served to pivot the conversation from the viability of open source deal structures to that of a debate on the choice of programming language.

Bond Lab is an example of open source software designed for the analysis of fixed-income securities with an emphasis on structured securities. It defines the classes, superclasses, structural elements, and methods required to create a structured security before the investor can begin to perform cash flow, relative value, and risk analysis.

The examples used in this book assume securities whose factor or origination date occurred sometime during January 2013, a random choice on my part. Swap rate data, taken from the Federal Reserve's website, is available for the month. The examples are:

Bond ID	Bond Type	Structure
bondlab5	Bond	5-year semi-annual coupon
bondlab10	Bond	10-year semi-annual coupon
bondlabMBS4	Mortgage	30-year pass-through
bondlabMBS5	Mortgage	30-year pass-through
BondLabMBSIO	Mortgage	IO strip
BondLabMBSPO	Mortgage	PO strip
BondLabPAC1	PAC	REMIC tranche
BondLabCMP1	companion	REMIC tranche
BondLabSEQ1	sequential	REMIC tranche
BondLabSEQ2	sequential	REMIC tranche
BondLabSEQ3	sequential	REMIC tranche
BondLabSEQ4	sequentialIO	REMIC tranche
BondLabPAC2	PAC	REMIC tranche
BondLabFloater	floater	REMIC tranche
BondLabInverse	inverse	REMIC tranche
BondLabPACZ	PAC	REMIC tranche
BondLabCMP_Z	companion	REMIC tranche
BondLabZ	accrual bond	REMIC tranche

Finally, the Bond Lab structuring tool allows the reader to create any structure by defining the REMIC, its tranches, collateral group, and payment waterfall. Thus, the reader may extend her analysis and investigation in any direction she chooses. The Companion to Investing in MBS (companion2IMBS) provides a gentle introduction to BondLab, calling much of the functionality presented herein.