1. Asset Liability Management User Guide
  2. Oracle Asset Liability Management Process
  3. Defining Adjustment Rules
  4. Adjustment Methods and Rules
  5. Adjustment - Formula Based Rate

8.20.1.2 Adjustment - Formula Based Rate

The Formula Based Rate Adjustment method allows the user to determine the add-on rate based on a lookup from the selected yield curve, plus a spread amount, and then the resulting rate can be associated with specific terms or term ranges. Reference Term selections include:

  • Repricing Frequency: The calculation retrieves the rate for the term point equaling the reprice frequency of the instrument. If the instrument is fixed-rate and, therefore, does not have a reprice frequency, the calculation retrieves the rate associated with the term point equaling the original term on theinstrument.
  • Original Term: The calculation retrieves the rate for the term point equaling the originalterm on the instrument.
  • Remaining Term: The calculation retrieves the rate for the term point corresponding to the remaining term of the instrument. The remaining term value represents the remaining termof the contract and is expressed in days.

    Remaining Term = Maturity Date – As of Date

  • Duration (read from the TP_DURATION column): The calculation retrieves the rate forthe term point corresponding to the Duration of the instrument, specified in the TP_DURATION column.
  • Average Life (read from the TP_AVERAGE_LIFE column): The calculation retrieves the rate for the term point corresponding to the Average Life of the instrument, specified in the TP_AVG_LIFEcolumn.

You can create your reference term ranges and assign a particular formula-based adjustment rate to all instruments with a reference term falling within the specified range.

With this method, you also specify the Interest Rate Code and define an Assignment Date for the Rate Lookup. The Interest Rate Code can be any IRC defined within Rate Management but will commonly be a Hybrid IRC defined as a Spread Curve (that is, Curve A – Curve B).

Assignment Date selections include:

  • As ofDate
  • Last RepricingDate
  • OriginationDate
  • TP Effective Date
  • Adjustment Effective Date
  • Commitment StartDate

The formula definition includes the following components:

Term Point: Allows you to associate a specific term point from the IRC to each Term Range.

Coefficient: Allows you to define a multiplier that is applied to the selected rate.

Rate Spread: Allows you to define an incremental rate spread to be included on top of the IRC rate. The resulting formula for the adjustment rate is: (Term Point Rate * Coefficient) + Spread

For increased precision, you can reduce the Term Ranges to smaller term increments allowing you to associate specific IRC rate tenors with specific terms.