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Oracle Transfer Pricing User Guide
Release 12.1
Part Number E13524-03
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Adjustments Rules

This chapter describes the procedure for working with and managing Adjustments rules.

This chapter covers the following topics:

Overview of Adjustments Rules

The Adjustments rules allow you to specify methodologies to calculate add-on rates and breakage charges for the products in your portfolio. The methodologies contained in the Adjustments rule are referenced by the Transfer Pricing Process rule. See: Transfer Pricing Process Rule and Adjustments Rules.

The procedure for working with and managing the Adjustments rule is mostly similar to that of other Oracle Transfer Pricing business rules. It includes the following steps:

As part of creating and updating Adjustments rules, you can also define adjustments methodologies. See:

Oracle Transfer Pricing provides you with the option to copy, in total or selectively, the product assumptions contained within the Adjustments, Transfer Pricing, and Prepayment rules from one currency to another currency or a set of currencies. See: Copying Assumptions Across Currencies.

Creating Adjustments Rules

You create an Adjustments rule to define adjustment methodologies for your products.

Procedure

  1. Navigate to the Adjustments rule home page.

  2. Complete standard steps for this procedure. See: Creating Rules.

Important: In addition to the standard steps for creating rules, the procedure for creating Adjustments rule and version involves one extra step. After Standard Step 5, you need to select a product hierarchy. You can define methodologies at any level of the hierarchical product dimension. The hierarchical relationship between the nodes allows inheritance of methodologies from parent nodes to child nodes.

You can also continue defining a methodology at the lowest level of the Line Item dimension without selecting a hierarchy.

Caution: Oracle Transfer Pricing does not support multiple value set hierarchies and hierarchies with multiple tops. In addition, all the hierarchies need to be stored in flattened format for processing by the application. See: Working with Hierarchies, Oracle Enterprise Performance Foundation User's Guide.

Related Topics

Overview of Adjustments Rules

Standard Navigation Paths

Defining Adjustment Methods

The definition of adjustment methods is part of the Create or Update Adjustments rule process. When you click Apply in the Create Adjustments rule process, the rule and the version are saved and the Adjustments rule home page is displayed. However, the adjustment method has not yet been defined for any of your products at this point. Typically, you would start defining your adjustment method for product-currency combinations before clicking Apply.

Selected Terminology
Term Definition
Reference Term The associated term used for the add-on rate assignment. You can specify any of the following types of reference terms: Original Term (the contractual term to the maturity of the account), Repricing Frequency (the frequency at which the account reprices), Remaining Term (the number of months until the account matures).
Lookup Method Method used to derive an add-on rate for different reference term values.
Specify Range as the lookup method if you want the application to apply the rates defined in the Adjustments rule to a range of reference term values, using the terms defined in the rule to specify the lower end of the range. Note that for values less than the lowest Adjustments rule term point, the application uses the value associated with the lowest point.
Specify Interpolation as the lookup method if you want the application to interpolate values for rate for reference term values falling between those specified in the Adjustments rule, using straight line interpolation between the term points.
Term In conjunction with the Multiplier, this field allows you to specify the value for the Reference Term, for a given lookup tier.
Multiplier The unit of time applied to the Term. The choices are: Days, Months, Years.
Rate The add-on rate to be applied to instruments where Reference Term is the product of the Term and Multiplier defined for the row. The rate should be in percentage form, for example., 1.25 percent should be input as 1.25.
Amount The add-on amount to be applied to instruments where Reference Term is the product of Term and Multiplier defined for the row.
Assignment Date Allows you to choose the date for which the yield curve values are to be picked up. Choices available are the Calendar Period End Date, Last Repricing Date, or Origination Date.
Interest Rate Code Used for the rate lookup for the Formula Based Rate, and in the Economic Loss method when discounting cash flows.
Formula The mathematical formula used in the Formula Based Rate adjustment method to determine the Add-on rate: (Term Point Rate * Coefficient) + Rate Spread
Term Point In conjunction with the Multiplier (day, month, or year), it is used in the Formula Based Rate method when looking up the rate for the designated Interest Rate Code.
Coefficient Coefficient by which the the Term Point rate should be multiplied.
Rate Spread The spread added to the interest rate read from the selected Interest Rate Code.  Rate Spread is used in the Formula Based Rate and Economic Loss adjustment methods.  For the Formula Based Rate method, the spread is added to the result of the Term Point Rate * Coefficient.  Enter the Rate Spread in percentage form, for example, 1.25 percent should be input as 1.25.
Minimum Charge Used in the Fixed Percentage and Economic Loss adjustment methods for Breakage Charges.  If the calculated Break Funding Amount is less than the Minimum Charge, then the Minimum Charge overrides the calculated amount, and is written to the Break Funding Amount column.

Availability of Adjustment Methods

The availability of adjustment methods depends on the adjustment type that you select: add-on rates (including Liquidity Premiums, Basis Risk costs, Pricing Incentives, and Other adjustments), or Breakage Charges. The following table describes the adjustment methods available for each of the adjustment types.

Availability of Adjustment Methods
Adjustment Method Adjustment Type: Add-On Rates (Liquidity Premiums, Basis Risk Costs, Pricing Incentives, and Other Adjustments) Adjustment Type: Breakage Charges
Do Not Calculate Yes Yes
Fixed Rate Yes  
Fixed Amount Yes Yes
Formula Based Rate Yes  
Economic Loss   Yes
Fixed Percentage   Yes

Note: Select the Do Not Calculate adjustment method to bypass the adjustments calculations. When your Adjustments rule is based on a line item (product) hierarchy, selecting this method also precludes inheritance of a calculation method from a higher node.

Adjustment Method Parameters

To define an adjustment calculation method, you must specify one or more parameters, depending on the method. The parameter fields may display a default value, which you can override.

The following tables display the parameters associated with the adjustment methods for different adjustment types.

Parameters Applicable to the Adjustment Methods for the Add-On Rates Adjustment Typesdefining adjustment methodsparametersadd-On rates adjustment type parameters
Adjustment Method Reference Term Lookup Method Term (Reference Term Value) Multiplier (Reference Term Multiplier) Rate Amount Assignment Date Interest Rate Code Formula (Yield Curve Term Point and Multiplier, Coefficient, and Rate Spread)
Do Not Calculate                  
Fixed Rate Yes Yes Yes Yes Yes        
Fixed Amount Yes Yes Yes Yes   Yes      
Formula Based Rate Yes Yes Yes Yes     Yes Yes Yes

Note: The Add-On Rates adjustment types include Liquidity Premiums, Basis Risk Costs, Pricing Incentives, and Other Adjustments.

Parameters Applicable to the Adjustment Methods for the Breakage Charges Adjustment Typedefining adjustment methodsparametersbreakage charges adjustment type parameters
Adjustment Method Break Funding Amount Break Funding Rate Interest Rate Code Rate Spread Minimum Charge
Do Not Calculate          
Fixed Amount Yes        
Economic Loss     Yes Yes Yes
Fixed Percentage   Yes     Yes

Prerequisites

Procedure

Once you have created an Adjustments rule and a version, you can assign adjustment methodologies to product-currency combinations in any of the following two ways:

Use the following procedure to define an adjustment method:

  1. Navigate to the Adjustments rule version definition page.

  2. Select an appropriate adjustment type: Liquidity Premiums, Basis Risk Costs, Pricing Incentives, Other Adjustments, or Breakage Charges

    Note: The availability of adjustment methods depends on the adjustment type that you select.

  3. Select a View for inputting adjustment method parameters: All products for one currency or All currencies for one product.

  4. Based on the view selection, specify an appropriate currency or product.

  5. Click Go. Depending on the selected view, the application displays a list of all the products (for which you can define assumptions) or currencies (that are active in the system).

  6. Click Update corresponding to the product-currency combination for which you want to define the adjustment method.

  7. Select an adjustment method and enter the appropriate parameters.

    Important: The adjustment methods available depend on the selected adjustment type. See: Availability of Adjustment Methods. Depending on the adjustment type and method adjustment combinations selected, certain required and optional parameter fields are displayed. You can update these fields as required. See:

  8. Click Apply. The version definition page is displayed. At this point you can:

Note: Oracle Transfer Pricing provides you with the option to copy, in total or selectively, the product assumptions contained within the Adjustments, Transfer Pricing, and Prepayment rules from one currency to another currency or a set of currencies. See: Copying Assumptions Across Currencies.

Procedure to Define the Formula Based Rate Adjustment Method

Defining the Formula Based Rate adjustment method involves the following additional steps:

  1. Select Update to define the mathematical formula. The Define Formula for Reference Term page is displayed.

  2. Specify the Term Point, Coefficient, and Rate Spread parameters on the Define Formula for Reference Term page.

Related Topics

Overview of Adjustments Rules

Copying Assumptions Across Currencies

Standard Navigation Paths