11.11 Define Repricing Patterns

User-Defined Repricing Patterns provide a mechanism to capture the repricing structure of instruments whose rates change according to complex schedules which cannot be captured in the standard fields of account tables.

The User-Defined Repricing Pattern allows you to define multiple changes to various elements affecting repricing including:

• Rates
• Margins
• Frequency

A Repricing Pattern has the following major components:

• User-Defined Repricing Pattern
• User-Defined Repricing Event

Note:

Repricing Patterns are a common capability within OFSAA applications, but FTP users should be aware that while the FTP application recognizes instruments with Repricing Patterns (custom ADJUSTABLE_TYPE_CD), the TP Engine does not behave differently when compared to standard adjustable-rate instruments. The behavior is the same because FTP always considers the information provided on the instrument record first. When processing adjustable-rate instruments, including standard and repricing pattern-based products, the FTP engine will refer to the LAST_REPRICE_DATE and NEXT_REPRICE_DATE to determine the relevant fixed-rate period. For pattern-based records, users should ensure that these dates are consistent with the Repricing Pattern Dates.

This note applies to standard FTP processing. However, when calculating Option Costs using the Monte Carlo Engine in FTP, the Repricing Pattern information is used to determine the future rates, rate cap/floor information, and any associated pricing margins that needs to be applied over the life of the instrument record.

• User-Defined Repricing Pattern
  The User-Defined Repricing Pattern provides you with the ability to define a series of repricing patterns and events that describe the Interest Rate Adjustment characteristics over the life of a cash flow instrument. One Repricing Pattern can be assigned to many cash flow instruments.
• User-Defined Repricing Event
  The events of a Repricing Pattern define changes to the interest rates of an instrument during its life. Every pattern begins with an initial event, which describes the behavior for the initial period.
• Absolute Repricing Pattern
  The Absolute Repricing Pattern is used for instruments that are date dependent. Each specific date is a separate event.
• Relative Repricing Pattern
  The Relative Repricing Pattern is a series of Repricing Events that are driven by user-defined timelines. It is used for instruments where the repricing is determined by the elapsed time since origination. You specify the duration of each Repricing Period (frequency) and the number of times the event should occur (repeat) before calculating the next event in the pattern.
• Pricing with Balance Tiers
  Repricing Patterns include the option to set rates based on the balance of the instrument being priced. This selection is optional and users can select “None”, meaning there are no balance tiers needed, or they can select “Current Balance”. If Current Balance is selected, then users can define balance tier ranges and include different pricing details for each balance tier. This option is useful for applying pricing to products such as Savings Accounts or Money Market Accounts that pay different levels of interest-based on the account balance.