Linear Regression

The effectiveness of a hedging relationship in Hedge Accounting for P-HA can be determined prospectively or retrospectively using the linear regression analysis.

The following parameters can be calculated:

Gradient of the regression lines
Intercept of the regression lines
R² Coefficient
t-Test

Prerequisites

In Customizing for Financial Supply Chain Management under Start of the navigation path Treasury and Risk Management Next navigation step Transaction Manager General Settings Hedge Accounting for Positions End of the navigation path , you need to make the following settings:

Under Effectiveness Test Effectiveness Test Methods , you create one or more methods for the type Linear Regression.
When creating the effectiveness test methods for linear regression, you can choose between three methods.
- Independent: Store directly in the method the values for the parameters to be determined.
- Gradient an R²: Under Settings for Linear Regression Define Condition Type , you need to create condition types in which you store the values for the parameters. In the effectiveness test method, assign the condition type to be used.
- Customer Enhancement BAdI: For this method, use the BAdI under Settings for Linear Regression BAdI: Linear Regression Assessment Method Enhancement .
  
  Specify for the prospective effectiveness test whether market data scenarios, market data shifts, market data structure curves, or basis point shifts are used to determine the required data.
Assign a new hedging profile to the methods.

For performing effectiveness tests and valuations, the necessary market data must be entered in the market data tables. The necessary market structure curves, market data scenarios, and market data shifts must be maintained.