6.1.3.1.2 Parameters Tab

Fixed income instruments are used for forecasting and simulating the Cash Flows. The Cash Flow Engine needs interest rate models to simulate the evolution of interest rates. The Cash Flow Engine uses these models as part of the stochastic engine. You can enter the parameters for these models in the following ways:

  • Direct input into the UI

The following interest rate models are available:

  • Extended Vasicek
  • Ho and Lee
  • Merton
  • Vasicek

Parameter

To configure the Parameter, follow these steps:

  1. Navigate to Parameters tab of Interest Rate Curve.

    Figure 6-11 Parameters Tab on Interest Rate Curve window


    Parameters Tab on Interest Rate Curve window

  2. Enter the Effective Date Range filter.
  3. After clicking Add, default parameters for the Extended Vasicek Model are displayed for one Effective Date (the System Date on which the Interest Rate Code was created). You can edit these parameters or add new parameters using Add.
  4. Enter the Effective Date. Note that the Effective Date cannot be greater than the Current System Date.
  5. Select the Model from the Term Structure Model drop-down list. Effective Date and Term Structure Model combination must be unique within this IRC.
  6. The following term structure models of interest rates:
    • Extended Vasicek
    • Ho and Lee
    • Merton
    • Vasicek
  7. The following parameters needed by the models:

    Table 6-9 List of supported parameters for Models Term structure models in Interest Rate

    Model Parameter 1 Parameter 2 Parameter 3
    Extended Vasicek Volatility Mean Reversion Speed
    Ho and Lee Volatility
    Merton Volatility
    Vasicek Volatility Mean Reversion Speed Long Run Rate
  8. Enter values for Long Run Rate and Volatility in percentages.
    For example, a Long Run Rate of 5% is displayed as 5.000. To maintain the integrity of data, Rate Management restricts the accepted input values. The valid range and the default setting for each parameter.

    Table 6-10 Valid Range and Default Values of Interest Rate Parameters

    Parameter Valid Range Default Value
    Volatility 0% to 500% 0.01
    Mean reversion speed 0.00 to 500 0.0
    Long run rate 0.00% to 500% 0.0
  9. Click Apply.