Interpolation of PD Values to Buckets

The interpolation logic is part of a Batch. The first step in the process is to identify if any new PD term structures have been loaded as part of the SCD, this includes new PD Term Structure IDs or existing IDs but new dates. The interpolation logic kicks in only if there are new term structures. The next step in the process is the determination of the maximum number of buckets for which the PD values have to be interpolated and calculated for a given ID - Rating or ID-DPD band combination. The application looks up the Application Preferences table to determine the maximum period to which the PD values need to be extrapolated and the Setup Parameter table to determine the frequency, and bucket frequency, to which the values are to be interpolated.

Note:

If the bucket frequency is greater than the PD Term structure frequency, the PD values are not calculated or interpolated.

Once the total buckets are determined, the PD values are then calculated against each of the bucket IDs.

Note:

If the bucket frequency as part of the setup parameter is changed, then all historical data is removed and all the term structures, historical, current, and new, are interpolated to the new bucket frequency.