7.8.6.1 Single Timeline Patterns
To initialize an Instrument Record whose payment (or Repricing) characteristics are defined by a Single Timeline Pattern, the Cash Flow Engine must synchronize the detailed instrument record with the Payment (or Repricing) Pattern. Synchronization determines the Current Payment of the instrument within the Payment (or Repricing) Pattern.
The Synchronization Process depends on whether the pattern is relative or absolute. To synchronize a relative pattern, the Cash Flow Engine calculates the Payment (or Repricing) Dates for the instrument record by rolling the origination date forward by the pattern frequencies. Once it calculates a Payment (or Repricing) Date greater than the As-of-Date, it stops. The number of times it was necessary to roll the date forward determines the Current Payment (or Repricing Event) number for the record.
An Instrument Record processed on an As-of-Date of 03/31/2011 with an Origination Date of 01/01/2011, and a Next Payment (or Repricing) date of 05/15/2011 is matched to the following pattern:
Table 7-3 Example of the Instrument Record Processed
| Row | Frequency | Repetitions |
|---|---|---|
| 1 | 1M | 3 |
| 2 | 3M | 3 |
The Origination Date is rolled forward in the following manner:
Starting point 01/01/2011
- Add first monthly payment (or Repricing) frequency 02/01/2011
- Add second monthly payment (or Repricing) frequency 03/01/2011
- Add third monthly payment (or Repricing) frequency 04/01/2011
After the third roll forward, the Payment (or Repricing) Date is greater than the As-of-Date. The Cash Flow Engine interprets that the record is on its third payment (or Repricing), which is the final monthly payment (or Repricing). It models this payment (or Repricing) on the next payment (or Repricing) date from the detail record, in this case, 05/15/2011. The next payment (or Repricing) is scheduled for 8/15/2011, using the three-month frequency from the fourth payment (or Repricing) in the schedule.
Absolute Patterns do not require the same rolling mechanism for synchronization. The next payment (or Repricing) date from an absolute pattern is determined by the first month and day after the As-of-Date. If this date does not correspond to the next payment (or Repricing) date from the detail record, the next payment (or Repricing) date of the detail record supersedes the date of the pattern. From that point on in the process, the payment (or Repricing) dates from the pattern are used.
The Cash Flow Engine has been designed in this manner to provide greater flexibility in Modeling Payment and repricing patterns. However, this flexibility increases the importance of detailed data accuracy to ensure that when discrepancies exist between detailed data and patterns, the differences are intended.