SmartModels™ Calibrator offers two fundamental stages of functionality. The first allows the user to enter historical data for up to ten cash flow factors and thirty investment factors. From this historical data, the analyst may calculate historical returns, volatilities, and correlations of all of these factors.
The second mode of Calibrator functionality employs state-of-the-art optimization algorithms to determine maximum likelihood estimates for relevant cashflow factor model parameters, among them reversion speed, volatility, and exponential factor scaling. In addition, Calibrator allows the analyst to take the results from the first stage's analysis and further explore cash flow factor model behavior and associated event probabilities.
For more detail on the maximum likelihood estimation for interest rate model parameters used in Calibrator visit this Princeton University economics research page.