Attribution Models

Equity and hybrid attribution

Flametree supports the Brinson models for equity attribution, including asset allocation at multiple levels.

Flametree also offers hybrid attribution, combining top-down asset allocation analysis and bottom-up security-level return decomposition, using our internally developed methodology. To request a copy of the relevant paper, see our Papers section.

Fixed income attribution

Flametree offers the widest range of attribution models available from any vendor. This allows the user to replicate any investment process, providing detailed reports on the investment manager’s strengths and weaknesses.

The OpenPricing API allows users to define additional sources of risk. Flametree is therefore future-proofed against developments in the fixed income markets and is never restricted to a particular vendor’s view of how attribution should be run.

Predefined templates allow you to run widely used industry models, such as Carino, Tim Lord and key rate duration attribution. All templates are easily customizable to your specific requirements.

Flametree also offers duration allocation attribution and variants such as DTS (Duration Times Spread) modelling.

For a full list of the attribution options offered, see our Wiki.

OpenRisk

By default, Flametree calculates all returns due to interest rate risk and yield curve effects, including carry, sovereign curve and spread movements, convexity, and pull-to-par. The algorithms that calculate these returns are hard-coded into the program, allowing them to be optimized for speed and efficiency.

Returns arising from other effects are treated differently. For instance, an inflation-linked bond generates inflation carry, which is driven by changes in a country’s CPI (commodity price index), in addition to the other effects listed above.

Flametree uses an external risk function to calculate this return. To configure an inflation-linked bond to show this return, simply supply the name of this inflation carry function in the security’s security master record.

There is no limit to how many risk functions can be associated with a given security. For instance, an option may show return due to delta, gamma, theta, vega, and other sensitivity measures. To calculate the returns generated by these effects, simply add the names of the appropriate risk functions to the option’s security master record.

Flametree's data-light approach applies even here. For instance, security pricing using the Black-Scholes model require a volatility time series. Flametree's OpenRisk framework allows you to calculate volatility from the underlying return time series, rather than supplying it separately.

Flametree is future-proof. To include a new type of risk in your analysis, simply add a new risk function – or ask us to develop it for you.

For more information, refer to the section on OpenRisk on our Wiki.

Currency attribution

Flametree offers naïve, Karnosky-Singer and Ankrim-Hensel currency attribution.

The program can also generate theoretical hedge returns, using forward rates selected by the user.

Other factors

Flametree calculates leverage, cash, paydown, and configurable residuals. New security types can be placed in an ‘unattributed’ category and their performance contribution monitored until their treatment is clarified. Dated securities allow the characteristics of securities to change over time, and portfolios can be nested according to user requirements.