9 Risk Free Rates

Provision to consume Risk Free Rates (RFR) or any other index rate daily from a published source is provided. The system integrates product processor with centralized interest calculation engine. The Product Processor sends appropriate parameters to the Interest Calculation Engine per deal and receives the interest rate and computed interest amount.

RFR supports interest rate calculation on both simple average method and the compounding method, where the system adds accrued interest to the principal. The system maintains the daily interest amount and daily rate for each Money Market contract. RFR also supports interest rate calculation by using weighted average method (WAC).

Note:

Only simple interest calculation can be done by WAC.

RFR supports negative interest rate calculations using arrears method.

The required accruals are posted on currency working days only. Reconcile interest accruals for payouts at the end of the interest period.

RFR supports both the back and future value date bookings with proper interest application. The MM module supports the below RFR methods.

In Arrear Method supported for bearing type of products include the below types:

• Lookback
• Lockout
• Payment Delay
• Plain
• Interest Rollover

In addition to the above, the Money Market module also supports below RFR combination methods:

• Lookback and Lockout
• Lookback and Payment Delay
• Lockout and Payment Delay
• Lookback, Lockout, and Payment Delay

In Advance method supported for discounted and true discounted products include the below types

• Last reset
• Last recent

The WAC method supports the Arrear method and RFR combination method. The arrear method supports the following bearing products:

• Lookback
• Lockout
• Payment Delay
• Plain

The below RFR combination methods are supported in the WAC method:

• Lookback and Lockout
• Lookback and Payment Delay
• Lockout and Payment Delay
• Lookback, Lockout, and Payment Delay

For detailed information on RFR calculation method for each type, refer to the RFR Calculation Sheet.

This topic has the following sub-topics:

• Define Rate codes for Risk Free rates
  This topic provides the instructions to define the rate codes for risk free rates.
• Risk Free Rates
  This topic provides the instructions to capture the Risk Free Rates.
• Treasury Interest Class Definition
  This topic provides the instructions to capture the Treasury Interest Class Definition details.
• Money Market Product
  This topic provides the instructions to capture the RFR details in money market product.
• Money Market Contract
  This topic provides the instructions to capture the RFR details in Money Market Contract.
• Money Market Value Dated changes
  This topic provides the instructions to capture the RFR details in Money Market Value dated changes.
• Lifecycle Process Impact
  This topic describes the lifecycle process imapact of RFR contract.