32.2 Defining Adjustment Methods

The definition of Adjustment Methods is part of the Create or Edit Adjustments Rule process. When you click Save in the Create Adjustments Rule Process, the rule is saved and the Adjustments Rule Summary Page is displayed. However, adjustment assumptions have not yet been defined for any of your products at this point. You would start defining your adjustment assumptions for product-currency combinations before clicking Save.

To define an Adjustment Method, follow these steps:

• Perform the basic steps for creating or editing an Adjustment Rule.
• Populate the following details:

Table 32-1 Fields and Descriptions from the Adjustment Specification screen

Term	Definition
Reference Term	The associated term is used for the Add-on Rate assignment. You can select one of the following types of reference terms: Original Term (the contractual term to the maturity of the account), Repricing Frequency (the frequency at which the account reprices), Remaining Term (the number of months until the account matures).
Interest Rate Code	Used for the Rate Lookup for the Formula Based Rate, and in the Breakage Charge - Economic Loss Method when discounting cash flows.
Assignment Date	Allows you to choose the date for which the yield curve values are to be sourced. Choices available are the As-of-Date, Last Repricing Date, TP Effective Date, Origination Date, Commitment Start Date, or Adjustment Effective Date.
Lookup Method	The method used to derive an Add-on Rate for different reference term values. Specify Range as the Lookup Method if you want the application to apply the rates defined in the Adjustments rule to a range of reference term values, using the terms defined in the rule to specify the lower end of the range. Note that for values less than the lowest term point, the application uses the value associated with the lowest point. Specify Interpolation as the Lookup Method if you want the application to Interpolate Add-on Rate values for applicable reference terms falling between node points specified in the Adjustments Rule, using straight-line interpolation between the term points. Deals that are outside of range or ranges will not be populated with any values.
Term	In conjunction with the Multiplier, this field allows you to specify the value for the Reference Term, for a given Lookup Tier.
Multiplier	The unit of time applied to the Term. The choices are Days, Months, Years.
Rate	The Add-on Rate to be applied to instruments where the Reference Term is the product of the Term and Multiplier defined for the row. The rate should be in percentage form, for example, 1.25 percent should be input as 1.25.
Amount	The Add-on Amount to be applied to instruments where Reference Term is the product of Term and Multiplier defined for the row.
Formula	The mathematical formula used in the Formula Based Rate Adjustment Method to determine the Add-on Rate: (Term Point Rate * Coefficient) + Rate Spread.
Rate Floor and Rate Cap	The minimum and maximum rate. If the calculated value is less than the floor or more than the cap, then these rates will be applied. These boundaries are applicable only to Formula Based Method and Use the TP method from TP Rule Adjustment Method types. These are optional inputs. Ensure that the Rate Floor value is always less than or equal to the Rate Cap Value.
Term Point	In conjunction with the Multiplier (day, month, or year), it is used in the Formula Based Rate Method when looking up the rate for the designated Interest Rate Code.
Coefficient	Coefficient by which the Term Point Rate should be multiplied.
Rate Spread	The spread added to the Interest Rate read from the selected Interest Rate Code. Rate Spread is used in the Formula Based Rate and Breakage Charge - Economic Loss Adjustment Methods. For the Formula Based Rate Method, the spread is added to the result of the Term Point Rate * Coefficient. Enter the Rate Spread in percentage form, for example, 1.25 percent should be input as 1.25.
Minimum Charge	Used in the Fixed Percentage and Economic Loss Adjustment Methods for Breakage Charges. If the calculated Break Funding Amount is less than the Minimum Charge, then the Minimum Charge overrides the calculated amount and is written to the Break Funding Amount column.
Original Term	Select to apply Original Term to both Fixed and Adjustable Rate Instruments.
Standard Term	Standard Term is the traditional approach used in FTP, which is the original term for Fixed-Rate Instruments and Repricing Terms for Adjustable-Rate Instruments.
Repricing Frequency	Repricing Frequency is the frequency of rate change of a product.
Remaining Term	The remaining Term is the number of months remaining until the instrument matures.