8.6 Product Code- IRPH
IRPH – Interest Rate Options Hedge Physically Settled Swaption
Business Scenario
The financial product IRPH that is, Interest Rate Options Hedge Physically Settled Swaptions helps corporates/banks to provide the buyer with speculation or protection against adverse movement in floating interest rates compared to fixed interest rates while providing potential for profit in case of favorable movement of rates.
Targeted Customer Segment: Corporates/Banks who seek speculation/protection against adverse interest rate movement.
Introduction
Product IRPH covers the interest rate options of physically settled Swaptions hedge type deals. Product IRPH holds good for all the interest rate option types of both buy and sell with European expiry style, the exception being the swaptions which has three expiration styles like European, American and Bermudan.
Synopsis (ex. High level features etc.)
- Product IRPH is setup by linking with the underlying Single Currency Interest Rate Swap (IRS) derivative product.
- Covers Interest Rate Swaptions of Price-Based.
- Payment/Settlement is done on schedule basis based on the arrear/advance method of payment type
- Expiry Styles covered by swaptions are:
- European
- American
- Bermudan
- Amortization setup is done with daily frequency.
Detailed Coverage
Interest Rate Options can be cash settled as well as physically settled. Product IRPH is meant for cash settled interest rate options.
Product IRPH covers the following features:
Table 8-21 Detailed Coverage
Features | Type |
---|---|
Types of the Deal Covered |
|
Types of the Contract Covered |
|
Expiry Style’s Covered |
|
Payment Method Covered |
|
Amortization Covered |
|
Events Covered (including brief information on accounting)
Table 8-22 Events Covered
Events Covered | Terminology |
---|---|
AMDG | Amortization of Deferred Gains-Hedge |
AMND | Amendment Option Deal Contract |
AMRT | Amortization Of Deferred Inception Gain |
BOOK | Booking of the deal Contract |
EXER | Exercise Of Option |
EXPR | Expiry Of Option |
EXST | Exercise Settlement Of Option |
PRPT | Premium Payment\Premium Collection |
REVL | Revaluation Of Option |
REVR | Reversal Of Deal |
RTFX | Rate Fixing |
TERM | Termination of Option Contract |
Advices Supported
Table 8-23 Advices Supported
Advices | Description |
---|---|
OT_IRO_AMND | IRO Amendment Advice |
OT_IRO_CANC | IRO Cancellation |
OT_IRO_CONF | IRO Confirmation |
OT_IRO_DEAL_TKT | IRO Deal Ticket |
OT_IRO_TERM | IRO Termination Advice |
PAYMENT_MESSAGE | Payment Message |
REVSWIFT | Cancellation of Contract |
Messages
Following SWIFT Messages setup done in the IRPH product as part of product life cycle.
Table 8-24 SWIFT Messages
SWIFT Messages | Contact Field |
---|---|
MT 360 | IRO Confirmation Message |
MT 360 | IRO Amendment Message |
MT 364 | IRO Termination Message |
MT 360 | IRO Cancellation Advice |
MT 362 | Rate Rest Message |
Premium/Charges/Brokerage
Premium
Product IRPH enables the Premium Collection or Premium Payment through:
- Option Premium is expressed as a percentage of the notional principal / contract amount.
- Option Premium can be a flat amount as well.
Charges
- Component - OTBOOKCHG - OT Options Booking Charge
- Rule - OTBKCHG - OT Options Booking Charge Rule
- Flat Amount GBP 125
Special/Other Features
Product IRPH covers the following special features:
- Product IRCH covers all the three types of expiry styles like:
- American
- European (Default)
- Bermudan
- Product IRPH is Auto Exercisable or Manual Exercisable.
Additional information (ex. UDF & other Special Maintenance)
In case the Bank wants to capture any additional information regarding the agreement\customer, the same could be captured by defining the User Defined Fields (UDF).
OT Options Module Maintenance
OT Options module has to be setup with the following furnished maintenance,
- Option Branch Parameter Maintenance
- Role To Head mapping Class Maintenance
- Accounting Event Class Maintenance
- OT Product Maintenance
- Floating Rate Source Maintenance
- DV Rate Type Maintenance
- DV Float Rate Code Maintenance
- Floating Rate Maintenance
- Advice Format Maintenance
- Other General Maintenance Needed For Branch
Parent topic: Product Catalog - Treasury Options