1. User Guide
  2. Business Rules Administration
  3. Application Specific Rules
  4. Transfer Pricing Rules
  5. Overview of Transfer Pricing Methodologies and Rules
  6. Mid-Period Repricing Option

5.3.4.1.14 Mid-Period Repricing Option

The Mid-Period Repricing option allows you to take into account the impact of high market rate volatility while generating transfer rates for your products. However, the Mid-Period Repricing option applies only to adjustable-rate instruments and is available only for the following non-Cash Flow Transfer Pricing Methods:

  • Straight Term
  • Spread from Interest Rate Code
  • Spread from Note Rate
  • Redemption Curve

The rationale behind Mid-Period Repricing is as follows. If you do not select the Mid-Period Repricing option, Oracle Funds Transfer Pricing Cloud Service computes the transfer rate for an adjustable-rate instrument based upon its last Repricing Date. The assumption behind this method of calculation is that the input transfer rate for a month should be the daily average transfer rate for that entire month. Consequently, all instruments repricing in that month derive their transfer rates from the same (average) Transfer Pricing Yield Curve. However, this approach misstates the transfer rate, in periods when the interest rate level has moved substantially since the last repricing.

Take the example of a one-year adjustable-rate loan, which reprices on the 15th of the month, and that transfer rates have moved up 200 basis points since the last reprice. In this case, the theoretically pure transfer rate for the first half of the month should be 200 basis points lower than the transfer rate for the second half of the month. To apply such theoretical accuracy to your transfer pricing results, you should select the Mid-Period Repricing option.