NPV Analysis 

Use

In order to get an objective impression of the financial and risk situation of a credit institution, you have to be able to view all financial assets and liabilities in terms of their current market value. In the Risk Management component this is achieved by calculating mark-to-market values.

Integration

NPV analysis differs from other analysis functions in the following way:

·       In contrast to value-at-risk analysis, where the past market developments are used as a basis for predicting what will happen in the future, in NPV analysis, you can anticipate any market developments for the future – quite independent of what has happened in the past.

·       NPV analysis focuses on NPVs and future values, whereas GAP analysis depicts risks using position balances and cash flows on key dates or in periods.

Features

The SAP system provides the following options for NPV analysis:

·       Evaluation today based on current market data or scenario data

With NPV analysis today, all future cash flows are discounted to the current point in time using current market or scenario data.

·       Evaluation in the future on the basis of forward data generated from current market data

With NPV analysis for a future date, all cash flows arising after the future date are discounted back to it, using the forward data for the future data which is projected from the current market data.

·       Evaluation in the future based on scenario data

With NPV analysis for a future date using scenario data, all cash flows arising after the future date are discounted to this future date using the scenario data.

In Risk Management it is possible to value financial instruments with the bid/ask spreads quoted on the market. This procedure ensures that all transaction costs arising are taken into account. Transactions which are traded in different markets, e.g. German federal bonds or mortgage bonds, are valued in Risk Management using different market-specific yield curves. Likewise, the premiums for standard options and for exotic options are calculated on the basis of different volatility curves.

·       Depiction of proportional NPVs in the maturity bands from which the corresponding cash flows come

·       Depiction of the sensitivity of portfolio values or single transactions when individual market parameters are changed.

·       Multiple NPV calculations for different market parameter combinations and depiction in the form of a valuation grid