Hierarchy
EA-FINSERV (Software Component) SAP Enterprise Extension Financial Services⤷
FIN-FSCM-TRM-TM (Application Component) Transaction Manager⤷
FTHM_HEDGING_RELATIONSHIP (Package) Hedge Management - Package hedging relationship
Basic Data
| Data Element | THM_CALC_CATEGORY |
| Short Description | Calculation category for effectiveness |
Data Type
| Category of Dictionary Type | D | Domain |
| Type of Object Referenced | No Information | |
| Domain / Name of Reference Type | THM_CALC_CATEGORY | |
| Data Type | NUMC | Character string with only digits |
| Length | 3 | |
| Decimal Places | 0 | |
| Output Length | 3 | |
| Value Table | THMTS_ASS_D_CALC |
Further Characteristics
| Search Help: Name | ||
| Search Help: Parameters | ||
| Parameter ID | ||
| Default Component name | ||
| Change document | ||
| No Input History | ||
| Basic direction is set to LTR | ||
| No BIDI Filtering |
Field Label
| Length | Field Label | |
| Short | 10 | Cat |
| Medium | 15 | CalcCat |
| Long | 20 | Calculation category |
| Heading | 3 | Cat |
Documentation
Definition
The calculation categories represent the fundamental underlying methods of assessing and measuring effectiveness of hedging relationships.
In detail, they perform the following calculations:
[Note: In each case, when an effectiveness test is done, the calculated value for the prior valuation key date is subtracted from the value calculated for the current key date. In those cases where there hasn't been any valuation, the calculated value at inception date of the hedging relationship is deducted.]
001 = Cash flow differences spot value
For FX-risk, the cash flow(s) of both, the derivative and the hedge item (designated volume of the exposure) is/are converted separately on the valuation key date at spot rates, and then all cash flows of each side (the derivative and the hedge item) are summed up. The due dates are not considered for the calculation.
For interest risk, the reference interest value at key date is used to derive the interest amounts for all interest periods. This means that one interest rate is used for all cash flows with the same period, regardless of when they occur. Example: An instrument with 3-months coupons with reference interest LIB_USD_03 would use the rate for LIB_USD_03 valid on valuation key date to calculate the amount of all future coupons.
002 = Cash flow differences forward value
For FX-risk, the cash flow(s) of both, the derivative and the hedge item (designated volume of the exposure) is/are calculated separately at the forward rate of the respective due date. Then all cash flows of each side (the derivative and the hedge item) are summed up.
For interest risk, the yield curve at key date is used to derive the forward interest rate valid for each interest period. This interest rate is used to calculate expected interest amounts. These expected interest amounts are not discounted.
Example (simplified): A 3-month coupon that occurs in three years. On the yield curve, a 3-year-interest rate and a 4-year-interest rate exist. Out of these, the interest rate valid for 3 months starting in 3 years is derived.
003 = Cash flow differences forward discounted
For FX-risk, the cash flows of both, the derivative and hedge item (designated volume of the exposure), are discounted with the currency yield curve valid on valuation key date. They are then translated into the local (functional) currency at the spot rate valid on valuation key date. Then all cash flows of each side (the derivative and the hedge item) are summed up.
For interest risk, the procedure described in calculation category 002 is used. The resulting interest amounts are then discounted to the respective dates (last valuation date/inception date of the hedging relationship, and current valuation date) according to the yield curve valid on the valuation key date.
004 = Cash flow differences spot value (with interest accrual)
This calculation category corresponds to category 001, with the accrued interest being deducted. In other words, an interest accrual is automatically done to get the resulting value.
005 = Cash flow differences forward value (with interest accrual)
This calculation category corresponds to category 002, with the accrued interest being deducted. In other words, an interest accrual is automatically done to get the resulting value.
006 = Cash flow differences forward discounted (with interest accrual)
This calculation category corresponds to category 003, with the accrued interest being deducted. In other words, an interest accrual is automatically done to get the resulting value.
011 = Options: intrinsic value spot rate
This calculation category is only valid for options (first release: only FX-options). It corresponds to calculation category 001 (cash flow differences spot value).
The intrinsic value of the option is calculated by looking at the spot rate of the valuation key date.
If the intrinsic value is below zero, it is set to zero (there is no negative option value).
The cash flows of the hedge item are valued using the valuation key date spot rate, exactly like with calculation category 001.
012 = Options: intrinsic value forward rate
This calculation category is only valid for options (first release: only FX-options). It corresponds to calculation category 002 (cash flow differences forward value).
The intrinsic value of the option is calculated using the forward rate of the settlement date of its underlying fx transaction (or the next possible exercise date after valuation for American-style options, respectively). If the calculated intrinsic value is below zero, it is set to zero.
The cash flows of the hedge item are valued at the forward rate of their respective due date(s), again following the procedure used for calculation category 002.
013 = Options: minimum value (intrinsic forward discounted)
This calculation category is only valid for options (FX-options, Caps and Floors). It corresponds to calculation category 003 (cash flow differences forward discounted).
The intrinsic value of the option is calculated by discounting its cash flow based on the currency yield curve valid at key date. The discounted flow is then translated into the local (functional) currency at the spot rate of the key date. If the intrinsic value is below zero, it is set to zero.
The exposure cash flows are discounted with the currency yield curve at key date and then translated at the spot rate of the key date, following the procedure laid out in category 003.
021 = Hypothetical derivative
This calculation category is valid only for interest rate swaps (including cross-currency interest rate swaps) and FX options, in cash flow hedges.
A derivative is created to match the hedged item (i.e. the exposure) and is assigned to the hedging relationship along with the hedging instrument. This dummy or hypothetical derivative is then used in place of the hedged item to determine its value in hedge accouting. The hypothetical derivative must have the same critical terms as the underlying exposures: same notional amount, same repricing dates, same reference interest rates, mirror image caps and floors, and a zero fair value at the inception of the hedging relationship.
The hypothetical derivative can be valued either at clean price or not. This is set with the flag "Clean price" in the calculation type definition.
022 = Hypothetical derivative clean price
This category corresponds to category 021, and additionally deducts the accrued interest.
023 = Hypothetical derivative intrinsic value
For the derivative this method corresponds to category 013. Contrary to category 013 however, the exposure is not valued at its net present value, but at the intrinsic value of the hypothetical derivative. It makes sense to use category 023 if the hedging instrument as well as the hypothetical derivative are FX options, caps, or floors.
031 = Correlation
This calculation category is valid only for interest rate swaps (including cross-currency interest rate swaps) and FX options, in cash flow hedges.
The correlation method retrieves historical correlation data (uploaded into the system on a regular basis) and uses this to determine the effectiveness of a hedging relationship.
100 = Present value
The present value of the derivative is calculated according to the TR-MRM method.
For fx risk, the exposure cash flows are discounted with the currency yield curve valid on valuation key date. They are then translated at the spot rate of the key date, and summed up.
For interest risk, the forward rates for the interest period are calculated according to the method laid out in category 002 (cash flow differences forward value), i.e. the yield curve at valuation key date is used to derive the forward interest rate valid for each interest period. This interest rate is used to calculate expected interest amounts. The resulting interest amounts are then discounted according to the yield curve at valuation key date.
150 = Clean price (present value with interest accrual)
The clean price is the present value minus the interest accrued up to the valuation key date for the current period.
The process is the same as for the present value (category 100), but in the interest risk case, the accrued interest is deducted from the present value that was being calculated.
200 = Interest instrument: the benchmark
This category allows the use of benchmark-interest related calculations as laid out in FAS 138.
The basic idea is that the yield curve used to discount the underlying be shifted by a constant "spread". This spread represents the risk of default at inception date, which is typically not hedged with an in
History
| Last changed by/on | SAP | 20050615 |
| SAP Release Created in |
