8.18.4 Cash Flow: Average Life

The Average Life method determines the average life of the instrument by calculating the effective term required to repay back half of the principal or nominal amount of the instrument. The TP rate is equivalent to the rate on the associated interest rate curve corresponding to the calculated term.

Oracle Asset Liability Management derives the Average Life based on the cash flows of an instrument as determined by the characteristics specified in the Instrument Table and using your specified prepayment rate, if applicable. The average life formula calculates a single term, that is, a point on the yield curve used to transfer price the instrument being analyzed.

The Average Life TP Method provides the option to Output the result of the calculation to the instrument record (TP_AVERAGE_LIFE). This can be a useful option if you would like to refer to the average life as a reference term within an Adjustment Rule