Reprice Steps

Determine New IRC Value(s)

The raw customer rate (Raw RateC) is determined from the set of forecasted IRC values contained in the Forecast Rates assumption rule chosen within the ALM Deterministic Process. Additionally, a new transfer rate (Transfer RateT) is derived if the Modeling with Transfer Rates option is used. The variables used to determine the transfer rates are:

Raw RateC = ƒ(Rate set date, IRC, yield curve term)

Rate Set Date: The rate set date is the date from which the IRC value is taken. The date is determined as follows: Rate Set Date = Next Reprice Datem - Rate Lagr If the rate set date is less than the As of Date, the historical rate is retrieved from up to one year before the As of Date.

Yield Curve Term: If the IRC is a single point IRC (Prime, LIBOR), then the forecasted rate is used. If the IRC is a yield curve (for example, Treasury Yield Curve), the point on the yield curve equivalent to the repricing frequency is used. If no such point exists, straight line, cubic spline, or quartic spline interpolation is used to find the rate between the two nearest terms.

Example: (straight-line interpolation):

An instrument has a repricing frequency of 18 months, which does not exist on the yield curve. The two nearest points are the 12-month point and the 24-month point.

The 18-month point is determined as follows:

Table 7-13 Example of Straight-line Interpolation

Term	Rate
12 Months	6.00%
24 Months	9.00%

Interpolated Rate = Rate(Begin) + (Rate(End) - Rate(Begin))*(Term(interpolated rate)-Term(Begin))/(Term(End)-Term(Begin))

Rate(18 M) = 6.00% + (9.00%-6.00%) * (18 M - 12 M) / (24 M - 12 M) = 6.00% + 3.00% * (6 M) / (12 M) = 6.00% + 1.50% = 7.50%

Add Applicable Margin to the Raw Customer Rate

The margin of the customer is added to the raw customer rate.

If IR Margin type code is Rate (code =0), then provided Margin, Margin Gross is used as-is. If IR Margin type code is Percent (code=1), Margin is provided as a percentage of Raw Rate C. Margin on reprice event is calculated as:

MarginC = Margin % * Raw RateC

If using the Modeling with Gross Rates option, the gross margin is used. Otherwise, repricing depends on the Net Margin Flag. If the Net Margin Flag is set to a floating net rate, the net margin is used. If the Net Margin Flag is set to a fixed net rate, no Repricing occurs.

Raw RateC = Raw RateC + MarginC

Update the Current Transfer Rate if Modeling Transfer Rates

At this point, the current transfer rate (Current RateT) can be updated. Unlike the customer rates, no further adjustments are necessary.

Current RateT = Raw RateT + marginT

Apply Rounding Codes

The raw customer rate is adjusted using the method defined by the rounding codes and to the precision specified by the rounding factor. If the rounding factor is set equal to zero, no rounding occurs.

Table 7-14 Details of Rounding Codes

Method	Description
No Rounding	Rate is not rounded	5.123% Example (Raw rate = 5.123; rounding factor = 0.01)
Round-Up	ate is rounded to the nearest value greater than the raw rate with the specified precision	5.1300%
Round Down	Rate is rounded to the nearest value less than the raw rate with the specified precision	5.1200%
Truncate	Rate is truncated to the whole value	5.0000%
Round Nearest	Rate is rounded to nearest value to the raw rate with the specified precision	5.1200%

Apply Rate Change Minimum

The Raw Customer Rate including margin is compared with the current customer rate (Current RateC). If the amount the current customer rate would change by is less than the rate change minimum then the rate does not change. Therefore, the raw customer rate is set equal to the current customer rate.

Table 7-15 Raw Customer Rate

Condition	Absolute Value (Raw Rate - Current RateC) < Rate Change Minimum
Adjustment if True	Raw Rate = Current RateC

Set the Value of fully Indexed Rate(s)

The fully indexed rates are updated after rate change minimums and rounding codes are applied, and before caps and floors are applied to the raw rate.

If Model with Gross Rates is Yes (selected in Product Characteristics), then:
- If Net Margin Code is 0 (Net Rate is constant Spread to Gross) Fully Indexed RateG = Raw RateC Fully Indexed RateN = Raw RateC – MarginG + MarginN
- If Net Margin Code 1 (Net Rate is Fixed) Fully Indexed RateG = Raw RateC Fully Indexed RateN = Current RateN
If Model with Gross Rates is No (selected in Product Characteristics), then; Fully Indexed RateN = Raw RateC

Calculate Tease effect Financial Elements for Instruments in a Tease Period

For instruments in a tease period, determined by tease end date > current date in the modeling horizon, no adjustments are made to the current rate. However, the effect of the tease is recorded in two financial elements that are used at the next payment to calculate the income effect of the tease. On a tease record, the processing of a reprice event is complete at this point.

Table 7-16 Financial Elements for Instruments in Tease Period

Financial Element	Calculation
tease rate	Fully Indexed RateC - Raw RateC
tease balance	Current Balancem

Check Periodic Caps and Floors

The customer rate cannot change by more than the amount specified by the periodic change limits (periodic floor and periodic cap). If the raw customer rate would effect a change to the current customer rate that exceeds the periodic change limitations, the current customer rate is adjusted only by the amount specified by the periodic change limit. If periodic limits are applied to the raw customer rate, then this adjustment occurred should be recorded in the periodic cap/floor financial elements.

Table 7-17 Details of Periodic Caps and Floors

	Decreasing Rate Environment	Increasing Rate Environment
Condition	Raw RateC < Current RateC and Current RateC - Raw RateC > Periodic floor	Raw RateC > Current RateC and Raw RateC - Current RateC > Periodic cap
Adjustment if True	Raw RateC = Current RateC - Periodic floor	Raw RateC = Current RateC + Periodic cap

Check Lifetime Caps and Floors

The customer rate cannot be greater than the lifetime cap or less than the lifetime floor. If the raw customer rate fails either of these conditions, the raw customer rate is set equal to the appropriate value.

Table 7-18 Details of Updating Lifetime Caps and Floors

	Decreasing Rate Environment	Increasing Rate Environment
Condition	Raw RateC < Rate Floor Life	Raw RateC > Rate Cap Life
Adjustment if True	Raw RateC = Rate Floor Life	Raw RateC = Rate Cap Life

Update Current Rates

Table 7-19 Details of updating Current Rates

Customer Rate = Gross Rate	Current RateG = Raw RateCCurrent RateN = Raw RateC - MarginG + MarginN	Raw RateC > Rate Cap Life
Customer Rate = Net Rate	Current RateN = Raw RateC	Raw RateC = Rate Cap Life

Customer Rate = Gross Rate

Current RateG = Raw RateCCurrent RateN = Raw RateC - MarginG + MarginN

Raw RateC > Rate Cap Life

Customer Rate = Net Rate

Current RateN = Raw RateC

Raw RateC = Rate Cap Life

Update Next Repricing Date

The Next Reprice Date is rolled forward in pretension for the next repricing event. If the adjustable type code is Adjustable, the next reprice date is calculated as: Next reprice date = Current reprice date + reprice frequency If the adjustable type code is Floating or Variable, the next reprice date is set equal to the first date in the next modeling bucket.

Trigger Payment Recalculation

If the Amortization type is a Standard Conventional Amortization, the current payment on the Instrument Data is updated based on the new rate.