ALM Uses Wrong Discount Rate in Calculation of FE 715 'Present Value Of Principal Cash Flow'

(Doc ID 1572178.1)

Last updated on JULY 28, 2013

Applies to:

Oracle Financial Services Asset Liability Management - Version 5.6 and later
Information in this document applies to any platform.
Oracle Financial Services Analytical Applications (OFSAA)


In Oracle Financial Services Asset Liability Management (ALM), when you run an ALM Process with "Market Value" selected and a Discount Rate that uses the "Spot IRC" method, you are getting the wrong value output for Financial Element (FE) 715 "Present Value of Principal Cash Flows".  ALM is using a Discount Rate that is higher than any of the rates on the related Interest Rate Code (IRC) to calculate the Present Value of Principal Cash Flows.  You expect ALM to use a rate from the point on the IRC associated with the term between the Start Date/As of Date and the End Date/Maturity Date.


The Start Date/As of Date is 7/18/2013 and the End Date/Maturity Date is 3/1/2016 for a term of 956 Days.

You expect the ALM process to use an interpolated rate from between the following two term points on the IRC:

2 Years (730 Days): 9.48
3 Years (1095 Days): 9.72

Instead, ALM uses a much higher rate of 15% in the calculation of the Present Value of Principal Cash Flows:

FE 715 = 45,833,338/((1+0.15)^(956/365)) = 31,783,596.20

You expect FE 715 = 45,833,338/((1+0.09629)^(956/365)) = 36,025,466.83.


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