R12/XTR: Formula: Interest Rate Options Revaluation, Interest Swap Revaluation (Doc ID 1335266.1)

Last updated on MARCH 08, 2017

Applies to:

Oracle Treasury - Version 11.5.10.2 to 12.2.5 [Release 11.5 to 12.2]
Information in this document applies to any platform.

Goal

Interest Swap Revaluation:
Qn1:

How does Oracle Treasury calculates Interest Rate Swaps Fair Value? Which formula does the application consider to discount future payments or receipts?

Qn2:
Also, according to <note 262086.1>, when using Discounted Static pricing model, future cash flows of the deal are taken as they are found in the transaction and discounted to the revaluation date by using interest rates derived from the yield curve. What happens if I do not indicate a market data set, and therefore no association with yield curve exists? What rates uses revaluation program in order to calculate fair value?

Can you also provide me the Market Data Curve definition used in file IRS uploaded by you? I need this in order to properly understand provided formulas.

Qn3:
Please clarify: different formulas to calculate the PV Cupon for IRS fair value:

PV COUPON = COUPON / (1+DISC_RATE_COUPON*REVAL_TO_COUPON/YEAR))
PV COUPON = COUPON / (1+DIsC_RATE_COUPON)^(REVAL_TO_COUPON/YEAR))
Could you please clarify.

Qn4:
Can you provide me an example of how interest rate interpolation is calculated when selecting Exponential or Cubic Spline default interpolation?

Qn5:
When interpolation type is cubic spline how does the system calculates discount rates?

Interest Rate Options Revaluation
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Q1: You are revalue interest rate options and in order to validate system calculation you need to understand the formula used by the application to calculate fair value of this deal type by revaluation process.



Solution

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