Setting Up of Formulas 

Use

In Customizing, you set up formulas for each combination of determination procedure and default risk rule. These formulas are then used in the calculation of attributable amounts.

So that the system can calculate both volume-based and risk-based attributable amounts, the final formulas consist of variables, formula IDs, and calculation bases.

Prerequisites

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       1.      In Customizing, you can store any number of combinations of 4 variables by choosing ® Attributable Amount Determination ® Define Variable Assignment ID. You can use the following basic key figures as values for these 4 variables. The basic key figures are either calculated by the system, or you can import them:

¡        Net present value

¡        Nominal amount

¡        Return payment amount

¡        Advance payment amount

¡        Net present value based on external commitment

¡        Nominal amount based on external commitment

¡        Book value in transaction currency (you have to import this)

¡        Or other external key figures

       2.      You assign a combination of formula ID, calculation base and variable ID to each combination of determination procedure and default risk rule. The 6 formula IDs and 8 calculation bases are predefined in the system, and are in turn based on the assignment of the variables. This enables you to depict any number of formulas.

In addition to the four variables, the following abbreviations are used in the formula IDs and calculation bases:

¡        CALCBAS: Calculation base

¡        DEFPROB: Default probability

¡        ABS: Absolute amount

¡        CEQ: Credit equivalent (used only if the country risk functions have been activated)

¡        RR: Recovery rate

¡        VAR%: Value-at-risk weighting factor (used only if the country risk functions have been activated)

¡        AOF: Add-on factor

¡        LEQ: Loss equivalent (used only if the country risk functions have been activated)

Features

The system uses the formulas defined, the determination procedure, and the default risk rule to calculate attributable amounts for each transaction.

The following overviews show how the system uses the settings (formulas and calculation bases) in the determination procedure to meet the requirements for calculating counterparty/issuer risk and country risk.

Formulas	Counterparty/Issuer Risk	Country Risk
Max(0,CALCBAS)	Yes	Yes
Max(0,CALCBAS) x DEFPROB	Yes	No (1)
ABS(CALCBAS)	Yes (from TRM)	No
Max(0,CACLBAS) x CEQ x (1 - RR) x VAR%	No	Yes
Max(0,CALCBAS) x (1 - RR)	Yes	No (2)
Max(0,CALCBAS) x weighting factor	Yes, settlement risk	No
Max(0,CALCBAS) x DEFPROB x (1 - RR)	Yes	No

(1)     Is possible, depending on the customer's own requirements. Note here that in the secondary risk display, collateral is multiplied by the country default probability of both the collateral provider and the transaction.

(2)     Is possible, depending on the customer's own requirements.

CALCBAS	Counterparty/Issuer Risk	Country Risk
Var1	Yes	Yes
Max(0, Var1) + Var2 x AOF	Yes	No
Max(0, Var1) + Max(0, Var2 – Var1) x LEQ	No	Yes, CVAR only in formula 010
Var1 x AOF	Yes	No
Var3 - Var4	Yes, settlement risk	No
Var3 - Var4 + Var2 x AOF	Yes, settlement risk	No
Max(0, Var1) x LEQ	No	Yes, CVAR only in formula 010

Negative attributable amounts are considered in the netting procedure only.