New currencies, EONIA-curve, greater amortization flexibility, swaptions, etc.

Norman Winterling, Erik Süptitz. Monday, August 31, 2009

New currency pairs and interest curves; expanded possibilities for amending amortization in basic deals and interest derivatives; Bermudan-style Swaptions and other new functionality.

New currenciesNew Currencies

Existing currencies and currency pairings have been expanded.
Under the Market Data tab you can now find interest curves in EUR, USD, CHF, GBP, AUD, JPY and additional pairings (see table).

Portrayal of Cash Credits

Coupon CurveWith the integration of the EONIA-Curve in addition to the already available I/N Curve, cash credits can now be interpreted and understood better. Using this methodology cash credits can be understood like a simple variable loan. Simply select Daily Interest Rates as the Interest Period under Deal Details.

To deploy the EONIA-Curve, select Expert Settings under the option Coupon Curve and click on EONIA-Curve.
Now review your input using Calculate and make adjustments if appropriate. Press Save to include the deal in your Portfolio. Where a deal was initiated at an earlier date, at the end of the input process but before you save click on Load Historical Prices to import the interest rates of the relevant prior periods.

Hint: Cash credits, by their nature, are not long-term financing instruments. Because they generate large amounts of data as a result of daily determination of interest rates the maximum period for deals with daily interest rates is limited to 2 years.

Amortization at RefinanceRepayment alterations resulting from Refinancing Deals

In the section Amortization of the original financing deal, you can activate Amortization at Refinance where a payment has to be recorded on the same day, but immediately before, the refinancing takes effect. Simply tick the relevant box.
This enables the adjustment to be allocated to individual elements of the amortization plan. Where the original financing deal was an Annuity Loan, go to Expert Settings and select Amortization at Refinance.

Annuity Structures

Quick HedgeUnder Interest Swaps, annuities can now be accommodated along with the existing fixed and floating cash-flow options. As before, Interest Swaps can also be reached using the Quick-Hedge function by clicking on the Hedge button next to the relevant original loan deal. This will transfer the amortization structure of the original deal, including annuity loans, to swap deals.

Selecting a generic scheduleFor an illustration of annuity structures in a Cap, first open the original annuity loan and then the Quick-Hedge function as described above, then select Cap/Floor option. This will enable the complete annuity structure of the cap to be displayed.

Enhanced flexibity of Interest Swaps

Where the Quick-Hedge function is used to effect an interest swap, sals.acreates a generic swap whose legs can be altered subsequently. Once the instrument has been created, the user can adapt both sides of the swap (fixed interest, variable interest, annuity). One possible use here is the switch of the cash-flow models between the payer and receiver’s side.

Use of Bermudan Style SwaptionsSwaption (beta)

In Spring 2008 we released Swaption, which at that time was still a beta development, as part of the Interest functionality. Now it is possible to deploy Bermudan Style Swaptions and evaluate these independently. For assistance in understanding these deals and how they use the Report Function to evaluate them, please see our separate article Use of Bermudan Style Swaptions.

Avoidance of business day conventions in Interest Calculation

Avoidance of business day conventions in Interest Calculation 1In Expert Settings for Interest instruments you can find the function Round Interest Payments. With the tick box activated, the Business Day Conventions are not taken into account in the calculation of interest values. With Business Day Conventions, it is assumed that a setting other than “no modification” will be chosen and that either “Next Working Day” or “Previous Working Day” or “Modified Following” will be selected. With the function Round Interest Payments, you can show the same interest payments in every period (as distinct from the usual calculation method used for loans) without these being affected by Business Day Conventions.  This is the common way of calculating loan interest for example.

Avoidance of business day conventions in Interest Calculation 2Although the Days Convention has been ignored for the calculation of the amounts of the interest payments, they are however applied in determining the due dates for payment.

See example: Loan of 1m EUR at 3.5% fixed interest payable annually in arrears. Start date 10.08.2009.

The above example shows the typical calculation method for loans and, on the right, when the function Round Interest Payments is used.

Descriptive field „Deal Group“

In the input screen for Deals, under the tab General Data, in the field Deal Group, you can enter additional information relating to the instrument in question e.g. file references, sequence numbers etc. Use of this field is optional, as it is for the field Counterparty Name.
Deal Group

default_currency_en.pngDefault Currency

You can now stipulate your own preferred default currency. You can find the relevant selection possibilities under Settings. Users of the German language version should not select a default currency, as EUR has already been pre-set as the default currency.

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