16.1.2 Derivation of Discount Rate

Discount Curve: Engine would use Valuation Curve for Discounting. The engine uses a curve in Zero Rate, Annual Compounding, and Act/Act Accrual basis format. Rates would undergo rate conversion if the Valuation Curve were not in the mentioned format. For further information on Rate Conversion, see Rate Conversion section.

Term Point: Tenor in days of an event used to determine Term Point to calculate Discount Rate for that event. The tenor is calculated = (Payment Date of a record of an event – As of Date).

If Tenor equals 14 Days, Discount Rate of 14 D Tenor would be used.

Note:

If relevant Term Point were not available in Valuation Curve, CFE would interpolate to get the corresponding rate. Say if Term Point is 14 D, and there is no 14 D Term Point available in Valuation Curve, CFE would interpolate to get 14 D Term Point Rate.

While Interpolating CFE would convert Month Tenor into days by multiplying with 30.416667. Year Tenor is converted into days by multiplying 365.

Say CFE needs 14 D Term Point, and the Valuation curve has 1 D and 1M Term Point, CFE would use 1D and 30.416667 Days to interpolate 14 D term point.

Interpolation: CFE would use Linear/Cubic/Quartic Spline for interpolation. This is a selection at the process level.

Date of IRC: Engine refers to the instrument record’s event date to derive Discount Rates.

For example, say as of date is 3/31/2019, and 1st one month bucket starts from 4/1/2019 till 4/30/2019. If the event date falls on 4/14/2019, CFE would use/interpolate the 14 D Term Points rate from bucket 1 to calculate the discount rate. Tenor in days = 4/14/2019- 3/31/2019 = 14 D