7 Risk Free Rates

There is provision to consume SOFR or any other the index rates daily from a published source. The product processor integrates this value with the interest calculation engine. The Product Processor sends appropriate parameters to the Interest Calculation Engine per deal and receives the interest rate.

RFR supports both the back and future value date bookings with proper interest application.

Options module supports the below RFR methods:

In the Arrear Method, includes the below types:

• Lookback
• Lockout
• Payment Delay
• Plain

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

• Lookback and Lockout
• Lookback, Lockout, and Payment delay

In Advance Method, the supported types include the below:

• Last reset
• Last recent

RFR also supports interest rate calculation by using weighted average method (WAC).

Note:

Only simple interest calculation can be done by WAC.

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 method worksheet.

This topic has the following sub-topics:

• Define Rate codes for Risk Free Rates
  This topic describes the instructions to define the rate codes for risk free rates.
• Risk Free Rates
  This topic describes the instructions to capture the Risk Free Rate code details.
• Options Product
  This topic describes RFR preferences for the options product.
• Options Contract
  This topic describes RFR preferences in the Options contract.
• Lifecycle process Impact
  This topic describes the RFR lifecycle process impact.