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Oracle Transfer Pricing User Guide
Release 12.1
Part Number E13524-03
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Interest Rate Codes

This chapter discusses the procedure for working with and managing interest rate codes and loading related data such as historical rates and term structure parameters.

This chapter covers the following topics:

Overview of Interest Rate Codes

Oracle Transfer Pricing requires historical interest rates for transfers rate and option cost processing. However, insufficient security types, inconsistent quoting conventions, and lack of liquidity may make gathering comprehensive interest rate information a challenge. Interest Rate Codes (IRCs) allow you to define and manage historical interest rates for transfer pricing purposes. See: Creating Interest Rate Codes.

The procedure for working with and managing Interest Rate Codes (IRCs) is, to a certain extent, similar to that of other Oracle Transfer Pricing business rules. It includes the following steps:

Related Topics

Standard Navigation Paths

Searching for Interest Rate Codes

Search for an Interest Rate Code to perform any of the following tasks:

Prerequisites

Procedure:

  1. Navigate to Interest Rate Codes home page.

    The Interest Rate Codes home page is the gateway to all Interest Rate Codes and related functionality. You can navigate to other pages relating to Interest Rate Codes from this point.

  2. Enter one or more of the following search criteria:

  3. Click Go.

    Only Codes that match the search criteria are displayed.

Related Topics

Creating Interest Rate Codes

Overview of Interest Rate Codes Rules

Standard Navigation Paths

Creating Interest Rate Codes

You create Interest Rate Codes to define and manage historical interest rate data. Unlike other Oracle Transfer Pricing rules, Interest Rate Codes don't have versions.

Procedure:

  1. Navigate to the Interest Rate Codes Home page.

  2. Click Create Interest Rate Code.

    The Create Interest Rate Code page is displayed.

  3. Enter the Code.

    Note: A numeric value, the Interest Rate Code must be unique across all the interest rate codes in the database.

  4. Enter a name for the Code.

  5. (Optional) Enter a brief description for the Code.

  6. Select the Rate Format for the Code: Zero Coupon Yield or Yield to Maturity.

    The default value is Zero Coupon Yield. The selection of the Rate Format will influence the values available for Compound Basis. See: Dependencies between the Rate Format, Compound Basis and Accrual Basis Parameters.

  7. Select the Compound Basis from the drop-down list.

    The values available in this list depend on the Rate Format. See Dependencies between the Rate Format, Compound Basis, and Accrual Basis Parameters.

  8. Select the Accrual Basis from the drop-down list.

  9. Select the Reference Currency from the drop-down list.

  10. Define the Interest Rate Code Terms. Entering the term points for which you want to store the interest rates in a particular interest rate code involves the following steps:

    1. Enter a Term value and select a Multiplier, day, month, or year, for this term point from the drop-down list.

    2. (Optional) To add additional term points, click Add Another Row.

      Important: There are certain restrictions on Terms. They are:

      • The maximum number of Term Points that an Interest Rate Code can have is 731.

      • A new daily point will be rejected when its frequency falls within the range of an existing term having a monthly or yearly equivalent. For example, a new term of 28, 29, 30, or 31 days will be rejected when there is an existing term of one month.

      • A new monthly term will be rejected when its frequency falls within the range of an existing daily or yearly equivalent. For example, a new term of one month will be rejected when a daily point of 28, 29, 30, or 31 already exists.

      • If a new monthly point when divided by 12 overlaps an existing yearly point, it will be rejected. For example, a new term of 36 months duplicates an existing term of three years.

      • A new yearly point when divided by 12 must not equal an existing monthly point. For example, a new term of two years cannot equal an existing term of 24 months.

    3. (Optional) To delete Terms, select the required row and click Delete.

  11. Click Apply.

    The Interest Rate Code is saved and the Interest Rate Code home page is displayed.

Important: You can save an IRC once you have defined its attributes and terms. However, you need to load historical interest rate data and term structure parameters before you can use it for transfer pricing and option cost processing. See: Loading Data.

Guidelines

The following table describes the dependencies between the Rate Format, Compound Basis and Accrual Basis parameters.

Dependencies between the Rate Format, Compound Basis, and Accrual Basis Parameters
Rate Format Accrual Basis Compound Basis: Simple Compound Basis: Monthly Compound Basis: Annual Compound Basis: Semiannual
Zero Coupon   Yes      
  ACT/360 Yes   Yes Yes
  ACT/ACT Yes   Yes Yes
  30/365 Yes   Yes Yes
  30/ACT Yes      
  ACT/365 Yes   Yes Yes
Yield To Maturity 30/360 Yes      
  ACT/360 Yes      
  ACT/ACT Yes Yes Yes Yes
  30/365 Yes Yes Yes Yes
  30/ACT Yes      
  ACT/365 Yes Yes Yes Yes

Related Topics

Creating Interest Rate Codes

Overview of Interest Rate Codes Rules

Standard Navigation Paths

Loading Data

Before you can use an Interest Rate Code for transfer pricing and option cost processing, you need to load historical interest rate data and term structure parameters for the code. You can add this data using either the Oracle Transfer Pricing user interface or Web ADI. See:

Related Topics

Creating Interest Rate Codes

Overview of Interest Rate Codes Rules

Standard Navigation Paths

Loading Data Using Oracle Transfer Pricing User Interface

Use this procedure to load the following:

Prerequisites

Procedure to Load Historical Rates:

  1. Navigate to the Interest Rate Codes home page.

  2. Click Load Data corresponding to the Interest Rate Code for which you want to load data.

  3. Select the required Effective Date Range.

  4. Select the Data Type: Historical Rates or Parameters.

    Note: Historical Rates is the default data type.

  5. Click Go.

    Depending on the selected Effective Date Range, Historical Interest Rates are displayed.

    Note: The Historical Interest Rates are displayed in a descending chronological order.

  6. Click Add Row in the Historical Rates Table.

    A new row is displayed at the end of the table. It contains the Term Points that have been previously defined for the latest Effective Date Range.

  7. Select the Effective Date using the date selector. Alternatively, you can enter it in the space provided.

  8. Define the Rates for Term Point columns.

    Note: The valid range of rate values for a Term Point is from -999.999999% to 999.999999% (inclusive).

    Note: You do not need to define rate values for every Term Point for every effective date. Oracle Transfer Pricing has the capability to interpolate the blank Term Points at run time.

    Note: If no rate information is provided for a particular effective date then that row will be ignored by the application.

  9. Click Apply.

    The Historical Rates are saved and the Interest Rate Code home page is displayed.

Procedure to Load Parameters:

  1. Navigate to the Interest Rate Codes home page.

  2. Click Load Data corresponding to the Interest Rate Code for which you want to load data.

  3. Select the required Effective Date Range.

  4. Select Parameters as the data type.

  5. Select the required Effective Date Range.

  6. Click Go.

    Depending on the Effective Date Range, term structure parameters data entered previously for the relevant date range are displayed.

  7. Click Add Row in the Parameter Rates table.

    A new row is added. It contains fields for entering the term structure parameters. See: Valid and Default Values of Term Structure Parameters.

  8. Select the Effective Date using the date picker. Alternatively, you can type it in the space provided.

  9. Enter the Mean Revision Speed.

  10. Enter the Long Run Rate.

  11. Enter the Merton Volatility.

  12. Enter the Vasicek Volatility.

  13. Click Apply.

    The Term Structure Parameters are saved and the Interest Rate Code home page is displayed.

Guidelines

The following table describes the valid and default values for the parameters.

Valid and Default Values of Term Structure Parameters
Term Structure Parameters Valid Range Default Value
Mean Reversion Speed 0 to 10.0 0
Long Run Rate 0 to 999.9999% 0
Merton Volatility 0.01% to 10.0% 0.01%
Vasicek Volatility 0.01% to 10.0% 0.01%

Note: If you intend to process option costs using the Vasicek Term Structure Model, the engine will require a long run rate greater than 0.

Related Topics

Loading Data

Loading Data Using Web ADI

The Web ADI functionality complements the Oracle Transfer Pricing user interface. It is designed to allow Microsoft Excel-based data entry of historical interest rate and parameter information.

Prerequisites

Procedure:

  1. Navigate to the Interest Rate Codes home page.

  2. Click Load Data corresponding to the Interest Rate Code for which you want to load data.

  3. Select the type of data, Historical Rates or Parameter, you want to load.

    Important: The data type determines the columns that will be available on the Web ADI spreadsheet.

  4. Select the required effective date range.

    Important: You can load Web ADI based rates only from an empty spreadsheet.

  5. Click Launch Worksheet to invoke Web ADI.

  6. Create new record by entering the effective date and associated data.

    Important: In the spreadsheet, the IRC term points are reflected generically such as Term 1, Term 2, and Term 3. Consequently, you should input data in the correct chronological order to ensure that rates are uploaded appropriately. For reference, the IRC term structure is documented in the contextual area at the top of the spreadsheet. Web ADI allows you to edit the column descriptions to reflect the appropriate term point description. For example, you can change 'Term 1' to ‘1 D’ for informational purposes and save the spreadsheet, along with this edit, locally for future use.

  7. Select Upload on the Oracle menu of the spreadsheet.

    The system performs data validations and the Interest Rate Code home page is displayed.

    Important: The Web ADI rate loader does not restrict you from loading rates for an effective date that already exists in the database. The new rates will overwrite the existing rates. The assumption made is that these rates will be the same for any given effective date. In addition, the Web ADI rate loader allows you to input more than one row with the same effective date for a given IRC in the spreadsheet. In this case, the first occurrence of the effective date is loaded and any subsequent occurrences of the same effective date are ignored.

Related Topics

Loading Data