The Decomposition Engine.
This standalone engine shows six distinct teaching quantities. One credit in: six selected covenant and credit terms mapped into option-style teaching estimates, in basis points, without adding unlike economic quantities into one price. Read the methodology for the assumptions and limits.
The credit
The options
Your state paths
Upload a state-path file
JSON (schema covenant_state_paths) exported from your own model. The engine estimates the six lines on your paths.
Download the example JSON · Synthetic inputs, not an issuer.
The methodology page documents the path schema. Upload only rights-cleared, non-confidential state data; the public tool does not interpret or validate an agreement.
On smaller screens, scroll the table horizontally to see every column.
| Selected option-style line | teaching bps | ± s.e. |
|---|---|---|
| Combined price — not additive | — | — |
On smaller screens, scroll the table horizontally to see every column.
| Asset vol | Path put (bps) | BS reference (bps) | After sweep* (bps) |
|---|
Re-weight the paths to selected target moments by minimum relative entropy (weighted Monte Carlo), then re-run the teaching estimate. Moment matching does not establish an arbitrage-free risk-neutral measure or a calibrated price.
The full framework is Part VII of the LevFin Book: how selected covenant rights map into contingent payoffs, why capacity is not lender loss, and why legal permissions and economic payoffs must be separated. This engine produces a teaching estimate: option-style arithmetic on the paths you supply, not a calibrated risk-neutral price.
What this covenant decomposition engine does
A credit’s quoted spread is one blended number. This engine maps six selected covenant and credit terms into option-style teaching estimates in basis points: a Merton credit-risk put, a builder basket, an equity cure, an ECF debt-only sensitivity, a generic call proxy and a portability-premium proxy. The quoted spread is context only. Unlike quantities are not added into a combined price or compared with it as a residual.
Two input modes ship. Parametric quick-start builds illustrative paths from the sliders. Upload mode accepts a rights-cleared JSON state-path export from your own model. Optional moment re-weighting is a sensitivity: matching moments does not establish an arbitrage-free risk-neutral measure.
Every current output is a teaching estimate. The engine does not produce a calibrated risk-neutral price, parse an agreement, or determine contract-specific availability. The builder line shows alternative capacity snapshots, not universal upper or lower bounds. No market, relative-value or recommendation conclusion follows from these separate estimates.
The indexable explanation is the decomposition methodology. Companion calculators: builder basket, incremental debt, and make-whole.
Common questions
The engine shows separate teaching estimates in common units. Credit shortfall, distribution capacity and assumed contractual-right proxies are not added into a combined lender price.
It mixed unlike economic quantities. The corrected engine no longer reports a combined price, implied yield or quoted-spread residual.
Only when a contract-specific payoff is priced under an arbitrage-consistent risk-neutral measure calibrated to observable instruments, with discount, survival, recovery, exercise and RiskyPV01 conventions validated. This engine does not currently produce that label.
No. It applies simplified option-style arithmetic to the paths and terms you supply. It does not read a document, parse a covenant stack or determine contract-specific availability.
Merton credit-risk put, builder basket, equity cure, ECF debt-only sensitivity, generic call proxy and portability-premium proxy. Each is an option-style teaching estimate in basis points. The builder line shows alternative capacity snapshots, not universal upper or lower bounds.
The public engine is a teaching demo and is marked noindex. This methodology page is the indexable explanation of assumptions, evidence labels and limits.