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Questions on Option Market Value (FE711) Validation For Interest Rate Cap (Doc ID 2646943.1)

Last updated on MARCH 12, 2020

Applies to:

Oracle Financial Services Asset Liability Management - Version 8.0.0 and later
Information in this document applies to any platform.
Oracle Financial Services Asset Liability Management (ALM)
Oracle Financial Services Analytical Applications (OFSAA)
Oracle Financial Services Enterprise Performance Management (EPM)

Goal

Question 1: While testing embedded option for interest rate cap, no life cap effects (FE 580, FE 590, FE 600) were got as expected.
Assumption was Option Market Value (FE 711) should be very small and close to zero. However, significant amounts were received for FE 711 in each scenario, with or without life cap effects.

Is FE 711 calculation independent from life cap effects?
 
Question 2: It seems reasonable that long maturity may cause high FE711, however can you provide us with the validation Excel?
 
Question 3: Is "1.6 Year Forward Rate" referring to the future forecast rate of risk free curve or pricing curve?
 
Question 4: Does "a rate reset marks the end of one rate option" mean "number of days" is from bucket begin date to next reprice date (not maturity date)? Also, does "time to expiry" refer to the same but in years?

Solution

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In this Document
Goal
Solution
References


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