8.0 FTP Standard Existing Functionality for the TP Average Life Method for Floating Rate Accounts
(Doc ID 2680677.1)
Last updated on MARCH 29, 2024
Applies to:
Oracle Financial Services Funds Transfer Pricing - Version 8.0.0 and laterInformation in this document applies to any platform.
Oracle Financial Services Analytical Applications (OFSAA)
Oracle Financial Services Profitability Management (PFT)
Oracle Financial Services Funds Transfer Pricing (FTP)
Oracle Financial Services Asset Liability Management (ALM)
Oracle Financial Services Enterprise Performance Management (EPM)
Goal
Need some clarification on the FTP Cash Flow Average Life Method calculations for adjustable rate accounts. Have defined and ran an FTP process for source floating rate accounts (REPRICE_FREQ <> 0). Upon verification, the TP_AVERAGE_LIFE is the same irrespective of the LAST_REPRICE_DATE (LRD) - this is in accordance with the business expectation and in line with Funds Transfer Pricing User Guide on Page 268 in which it is stated that:
“The Average Life calculation does not differentiate between fixed rate and adjustable rate instruments. It applies the same calculation logic to both. i.e. it computes the Average Life of the loan (to maturity).”.
It is expected, in the case of the floating rate instruments, that the TRANSFER_RATE should be picked up from the FTP Interest Rate Curve (IRC) with the effective date corresponding to the LRD. However, it is noticed that the actual behavior of the system is to output the rate taken from the ORIGINATION_DATE irrespective of the account being fixed or floating.
For example, for two records with the following data (same account, different processing dates based on the repricing events):
R1:
ORIGINATION_DATE = 31-Jul-12
LAST_REPRICE_DATE = 30-Dec-19
R2:
ORIGINATION_DATE = 31-Jul-12
LAST_REPRICE_DATE = 30-May-20
After ran the FTP process was obtained:
R1:
TP_AVERAGE_LIFE = 7.349
TRANSFER_RATE = 4.487708
R2:
TP_AVERAGE_LIFE = 7.349
TRANSFER_RATE = 4.487708
It seems that although the yield curve defined in the TP rule had historical rates for:
31-Mar-20
01-May-20
30-May-20
31-May-20
01-Jun-20
the TRANSFER_RATE for both accounts are based on the rates from effective date = 31-Mar-20 which is the first set of historical rates after the ORIGINATION_DATE.
Why does the TP Average Life Method use origination date in case of floating rate accounts?
Solution
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In this Document
| Goal |
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