Indicator

Meaning

Example

Delta indicator

Indicates the status with which an option volume enters gap analysis/ALM simulation. The system contains the following options for handling the option volume:

·       The underlying of the option is not taken into account (delta = 0)

·       The underlying of the option is taken fully into account (delta = 1)

A delta of 1 is assumed for a call (purchase of an option) and a delta of –1 for a put (sale of an option). The delta of an option can be understood as the exercise probability of the option. This means that a delta of 1 or –1 represents a probability of 100% that the option will be exercised. The underlying of the option is taken fully into account in the position evaluation, maturity evaluation, and cash flow evaluation accordingly, regardless of whether the option is in-the-money, at-the-money or out-of-the money.

In the (currency) liquidity evaluation, and the net interest income evaluation, the underlying of the option is treated differently, depending on whether the option is or is not in-the-money. If the option is in-the-money, the underlying is taken fully into account. If it is at-the-money or out-of-the-money the underlying is ignored.

·       Underlying of the option, delta-weighted (liquidity evaluation: delta = 1 or –1)

The underlying of the option is taken into account, delta-weighted, in the position evaluation, maturity evaluation, and cash flow evaluation.

In the (currency) liquidity evaluation, and the net interest income evaluation, the underlying of the option is treated differently, depending on whether the option is or is not in-the-money. If the option is in-the-money, the underlying is taken fully into account. If it is at-the-money or out-of-the-money the underlying is ignored.

·       Underlying of option, delta-weighted (liquidity evaluation, delta-weighted)

The underlying of the option is taken into account, delta-weighted, in the position evaluation, cash flow evaluation and in the (currency) liquidity evaluation.

In the net interest income evaluation, the underlying of the option is treated differently, depending on whether the option is or is not in-the-money. If the option is in-the-money, the underlying, or the net interest income of the underlying, is taken fully into account. If it is at-the-money or out-of-the-money the underlying is ignored.

·       Options in-the-money: Underlying is taken fully into account, options at-the-money and out-of-the-money: Underlying is ignored.

The underlying of the option is treated differently, depending on whether the option is or is not in-the-money. If the option is in-the-money, the underlying is taken fully into account in all evaluations. If it is at-the-money or out-of-the-money, the underlying is ignored.

How an option is shown in the (currency) liquidity evaluation, and in the net interest income evaluation also depends upon the exercise type of the option.

...

      1.      Options exercised for a physical delivery:

In the (currency) liquidity evaluation, the flows of the underlying of the option are taken into account, and are delta-weighted depending on the setting. In the net interest income evaluation, the relevant net interest income is shown.

      2.      Options with cash settlement:

In the (currency) liquidity evaluation and the net interest income evaluation, only the settlement payment (intrinsic value of the option) is shown, and is delta-weighted depending on the setting. Hence the flows of the underlying of the options do not appear in the (currency) liquidity evaluation.

If you do not set the Delta Indicator, the option volume is not taken into account (default setting).

Display premium/discount

With this setting, loans or fixed and variable-rate securities, which are paid out with a premium or discount, can be displayed in accordance with the development of their interest rates. The premium or discount is distributed, weighted by volume, to the interest payment dates. In the position evaluation, a distinction is made between gross display and net display.

In the gross display, the nominal capital development and the premium/discount development are shown on different sides of the balance sheet.

In the net display, the netted payments are shown on one side of the balance sheet.

Example: Fixed-Rate Loan with Discount

Spread processing

Often, transactions with variable conditions contain a fixed interest portion or "spread". The Spread Processing indicator allows you to define how the spread is treated in position evaluations. You can choose to display the spread as a variable item or as a fixed-rate item. If you choose to display the spread as a fixed-rate item, you have to decide whether the nominal volume is displayed on its own on the original balance sheet side, or also displayed on the opposite side with a zero condition (so that the volume in the gap is correct again).

Outflow indicator

In gap analysis, the outflow indicator is used to determine whether the negative outflows (inflows) are moved to the opposite side of the balance sheet, or appear on the same side of the balance sheet in the outflow evaluation.

Example: Fixed-Term Deposit, Plain Vanilla Interest Rate Swap

Calculate forward rate

In gap analysis, you can decide whether future cash flows that are not quoted in the evaluation currency are translated at the current exchange rate (default) or at the relevant forward rate.

Interest calculation method (ICM)

Each transaction in the SAP data pool has an interest calculation method (ICM) that is assigned in the transaction’s conditions. For evaluations in gap analysis and ALM, it is absolutely essential that the interest calculation methods of the transactions are adjusted so that they all have the same method, otherwise no comparison is possible. (Default setting: there is no adjustment to a standard interest calculation method. However, interest calculation method 360/360 is used in the net interest income evaluation.)

OI determination

(valuation-rule- specific, can be overridden)

The entry you make in this field controls which opportunity interest rate is used in ALM to determine the net interest margin. If you adopt the default setting, the product interest rate is used as the opportunity interest rate. You also have the following options:

·        Use of an external key figure, which can be maintained in the financial object

·        Use of the opportunity interest rate calculated in Profitability Analysis on the basis of nominal values during the calculation process.

If you want to use the opportunity interest rate generated in Bank Profitability Analysis, you need to go into the settings for the fixed costing procedures in Customizing for Bank Profitability Analysis and make sure that the field Nom. OI Determ.(ALM) has the value Calculate.

·        For accounts and variable transactions, the opportunity interest rate can be calculated as an average of the opportunity interest rates from the maturities simulated in the due date scenarios.

Example: Account

Static interest rate (StatInd)

(valuation-rule- specific, can be overridden)

You use this setting to define whether the product interest rate or the static interest rate is displayed for discount transactions (loans, securities) in gap analysis/ALM. The static interest rate is an approximation of the effective interest rate, in which the premium/discount is distributed to the other interest payment dates.

Example: Fixed-Rate Loan with Discount

Balance sheet volume in net interest income (BS Volume in Int. Res)

(valuation-rule- specific, can be overridden)

You can choose whether the off-balance-sheet volume is to be taken into account in the net interest income evaluation. If you set this indicator to Off-Balance-Sheet Transactions Not Included, the result is still influenced by off-balance-sheet transactions, but only the balance sheet volume is displayed in the net interest income evaluation (for example, the column Asset-side balance sheet volume). This indicator influences the relevant volume columns only.

End of loan

(valuation-rule- specific, can be overridden)

By setting this indicator you control which date field the system is to access (term end or end of fixed-rate period) in the case of loan transactions if you select capital commitment (commitment indicator) when you choose Data Relevant for Display.

Forward exchange transaction

By setting this indicator you choose how forward exchange transactions are shown in gap analysis. You have the following options:

·       Display as NPV
In the position evaluations, the nominal volume discounted to the contract date is shown.

·       Forward exchange transactions for hedging capital positions
In the position evaluations, forward exchange transactions are shown with the nominal capital and an interest rate of zero. In the net interest income evaluation, although a position is shown, no net interest income is shown.

·       Forward exchange transactions for hedging interest payments
If you choose this option, forward exchange transactions are not shown in the position evaluation. In the net interest income evaluation, an entry is made both for the interest revenue of the interest position and for the interest expense of the position. These values are shown for the relevant period.