11.8.8 Ledger Migration of Option Costs

Ledger migration of option costs is similar to that of the transfer rate. However, there are no steps for calculating option costs directly on the Management Ledger Table. This is because the calculation of option cost is a cash-flow based method that requires the Instrument table data. Normally, option cost is represented in the Instrument table record as the difference between two columns, HISTORIC_ STATIC_SPREAD and HISTORIC_OAS (Option Adjusted Spread) and is expressed as a rate, in percent.

Option Cost = HISTORIC_STATIC_SPREAD - HISTORIC_OAS

If option cost ledger migration is specified in the Stochastic Transfer Pricing Process, option cost is accumulated in the Virtual Memory table (VMT) and written to the Management Ledger table as Financial Element 171, Average Historical Option Cost. The corresponding charge/credit for Funds is written as Financial Element 451, Historical Option Cost Charge/Credit.

Option Cost Ledger Migration under the Remaining Term Calculation Mode

The option cost ledger migration process is nearly identical under the Remaining Term calculation mode, except that Financial Elements 453 and 173 are substituted for 451 and 171, respectively.

Note that under the Remaining Term calculation mode, the option cost source in the Instrument tables is the difference between the Cur_Static_Spread and Cur_OAS columns.