Determining Net Present Values

Use

You use this function to calculate NPVs for transactions/loans with positions in parallel valuation areas. The net present values are calculated by the Market Risk Analyzer and saved in table VTVBAR. These values can then be applied in parallel valuation.

Integration

See also: Overview: Calculating NPVs in TRM

Prerequisites

  • To use the this function, you need to define the evaluation type in the settings in Customizing for the Market Risk Analyzer. You need to make the settings for the reference interest rates and so on. The system calculates the NPV using the yield curve types assigned on the Market Data tab.

    If you use the Yield Curve Framework, you can define basis spread curves and credit spread curves, assign derivation strategies in the evaluation type, and calculate NPVs on the basis of the composite curve.

    Even if you do not use the Yield Curve Framework, you can calculate a risk-based NPV by storing credit spreads (settings in the evaluation type on the Evaluation Control tab in the Spreads for Usage in Yield Curves area under Credit Spreads Parallel Shifts) or by assigning a risk-based yield curve (the values of which you receive from a market data provider or you have calculated outside of the system).

    See also:

If you also want to calculate a risk-free NPV, you need to assign risk-free yield curve types in the evaluation type on the Market Data tab and set the Risk-Free NPV indicator when you run the program.

The results are stored in the NPV table (table VTVBAR, transaction JBNPV).

Activities

  1. Call the function Determine Net Present Values (transaction TPM60) in the application menu of the Treasury and Risk Management under Start of the navigation path Transaction Manager Next navigation step Money Market/Foreign Exchange/Derivatives/Commodities Next navigation step Accounting Next navigation step Valuation End of the navigation path or under Start of the navigation path Financial Risk Management for Commodities Next navigation step Accounting Next navigation step Valuation End of the navigation path.

  2. First specify whether you want to perform the calculation for loans or for OTC transactions.

  3. Make the following settings to select the financial transactions for which you want to perform the calculation.

  4. Under Evaluation Parameters, make the following entries:

    • Currency

    • Evaluation Type

    • Key Date

    • Clean Price Calculation indicator

      In addition to the NPV, the system calculates the clean price for the financial transaction (loans, money market transactions, or swaps).

    • Intrinsic Value Calculation indicator

      In addition to the NPV, the system calculates the intrinsic value and the time value of the financial transaction (in the case of OTC options).

    • Risk-Free NPV indicator

      In addition to the NPV, the system also calculates the NPV on the basis of the risk-free yield curve that is assigned in the evaluation type.

    • Separate NPV (In/Out) indicator

      In the case of two-sided transactions, the system calculates the NPV separately for the incoming side and the outgoing side. Total NPV = Total of Incoming and Outgoing Sides indicator

  5. In the Hedge area, you decide whether you want to run the program in the test run mode. Further, you specify the price/NPV type for OTC transactions with which the results are stored in the NPV table.

    You also specify whether results with warnings are also stored.

  6. In the Layout area, you can specify a layout variant that you have defined.

    You specify whether a detailed log is created and, if so, whether the log is stored.

  7. Run the program.